Business Plans: Seeing Audiences and Your Business Clearly


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  • Answer: b
  • A business plan explains to others why you are in business. It helps you with legitimacy concerns when dealing with banks, lenders, investors, etc… and can be used internally to focus efforts in the correct areas.
  • Start at the top and work your way down. Each is discussed in turn.
  • Kodak:” To be the best in the picture business” It helps define what your company is striving towards. Why you exist. It is a guide and a goal.
  • Second step, imagine you’re caught on the 10 th floor going down in an elevator with a venture capitalist. Now quick, convince him to invest in 30 seconds or less. Who are you? why is what you offer needed and different? Why should he meet with you and discuss this further? This makes a good thing to practice in class.
  • Example The 30-Second Business Plan “ E levator pitch"--a carefully prepared, well-rehearsed summary of who you are, what you do and why you are better at it than anyone else Verbal equivalent of your business card, but it needs to say much, much more, and it needs to say it very quickly The three biggest mistakes people make in their elevator pitches are: describing skills rather than purpose failing to tell an interesting story forgetting to rehearse and prepare Practice, practice, practice - You never know when you will need your elevator pitch
  • Most readers will look to the executive summary for a good complete summary of your business. There is not room for all the details at this level but it should give a complete overview of all important areas.
  • A complete classic business plan totals about 40 pages. There is a page breakdown on the next slide. It should have a cover sheet and be professionally printed.
  • There need to be a reason for someone to open your plan and read it. Bankers, VCs, and angels receive hundreds of plans, why should they investigate yours further?
  • Who are you? Why are you in business? Where are you going?
  • Patents should be mentioned here whether received or just applied for. Pictures with descriptions are helpful especially for unique products with which the reader may not be familiar.
  • Who is your market? Where are they? How do they purchase? How can you fill their needs?
  • It’s a technicality. But are you a partnership? Corporation? S-corp? DBA?
  • You, the entrepreneur, are the key. You have the passion. You have the desire, the vision, the idea. Now sell it. What have you done? Awards won? Contracts signed? Have you had past successes which may not be applicable to this product but to your overall success rate? Give them a reason to trust you, believe in you, invest in you.
  • Again, this is technical information but it does lend legitimacy to your organization.
  • Pictures are also helpful at this stage.
  • There are approximately 4 pages here. Your assumptions include economics of your geographic area (we don’t plan on recessions, unless we’re in one). You may have made assumptions about market size, initial sales, etc… Page 2: What is the deal you want? Do you want an active partner, a silent investor, a loan, or someone to buy you out. What are you looking for? Pages 3 and 4 are estimated income statements based on the assumptions from page 1. Lesser assumptions are on the last page.
  • Cash flow is a killer to startups. A profit on paper only won’t help you pay the bills. So how will you handle late payments by customers?
  • Appendices differ for different plans. You may or may not have and or need each of these. Make sure anything you include increases your legitimacy and builds confidence in you and your plan.
  • Answer: c
  • This is just another aspect of what your company is and the situation it is in.
  • These are risks your potential investors may point out. It is typical, because we believe in ourselves and our plans, to overstate what we can do. We become overly optimistic. If pointed out, your plan can be corrected for these problems.
  • If you have a circle of trusted advisors have them look over the plan first. They may be able to help you identify the risks, and correct for them, before presenting to investors.
  • Answer: a
  • Keep it concise and on key points. Remember to convey your passion, to SELL you idea and yourself.
  • Think about strategy in terms of football. The plays you run depend on the down, yards to go, strength and skills of your players, current score, time left in the game, and how you think the competing team will react. A strategy which works for one team will not necessarily work for another. However, a strategy is important. No good coach would show up to a game without his playbook.
  • Each stage is discussed in further detail.
  • Your first step is deciding what you are going into business to do. For example: I want to build a better mousetrap. This puts you in the extermination industry.
  • Trade associations often have magazines, conventions, websites, and other resources available to help businesses in their industry. Sometimes companies may band together to perform functions. For example: In the sporting goods industry it is not uncommon for stores to band together to purchase items in larger quantities to be able to purchase from the manufacturer. Contacts are used in this process and store do not normally compete in the same geographic region. The Dairy Farmers of America band together for the “Got Milk” campaign which promotes the product but not a specific brand.
  • Answer: a
  • Your potential market is anyone who could have a use for your product but who has not yet purchased. Your market is made up of those who purchase that type of product. Your target market is the subgroup you choose to focus on. Mass markets are everyone in the population. Coca-Cola mass markets to the entire US. Niche markets are small often underserved markets of people with a similar need and who act or purchase in similar ways. The scope of your market merely refers to how geographically large your market is and is outlined on the next two slide.
  • 3 Rules for Niche Marketing Niche marketing can be extremely cost-effective Niche marketing can be a low risk way to grow your business following 3 rules: Meet their unique needs Say the right thing Always test-market
  • Often, industry analyses can be purchased from trade organizations or market research firms.
  • Many of the basics can be found through simple online searches. While profitability may not be found quite so simply, the methods by which profits and sales are made come out in interviews with executives or articles on the industry.
  • A key to succeeding in business is knowing what your customer wants and how to provide it to him or her at a profit. Some benefits may be possible to add but may also lower your profits. Add the benefits that customers will be willing to pay more for. For example, people pay more for leather seats in their car, or a DVD player.
  • Some benefits to a customer are direct product features, others are services offered along with the purchase. Benefits can also come by saving customers time, money, or frustration.
  • There are several situations during which you can enter a market. If there is currently a shortage of market supply, you can offer your alternative or substitute to fill the demand. If there are resources which could be used more efficiently, or to make a better product, this gives you an advantage coming in. Contracting with customers who currently use this type of service locks them in to your service. For example, contracting with a heating and A/C company to provide routine maintenance. Some companies like to have a primary supplier, but during busy times may need a secondary supplier. You can start as a secondary supplier but through superior offering, pricing, or service become their primary supplier. Other times a conglomerate may be willing to ‘give up’ a small niche market which you may be better able to serve. Government bids often give an advantage to women or minority businesses. So make sure they know you are one. Whatever your advantage is, make the most of it.
  • Answer: c
  • Each of the four are discussed in turn. Strengths and weaknesses are internal to the company. Opportunities and threats come from outside the company.
  • How you react to the new found information depends on the situation. If an opportunity plays to your strengths, take advantage of it. If there is a threat in an area you’re weak in, don’t try to fight it. Fight the threats in areas in which you are strong. And if an opportunity come along in an area where you are weak, can you build up that weakness to be able to take advantage of the opportunity?
  • Answer: d
  • These are seven strategies which are unique to small businesses due to the nature of being small. Being able to customize quickly and well doesn’t happen when your machinery is best set for runs of 1,000 or more. Additionally large companies with thousands of customers cannot possibly know them all by name and provide individual service and support. Nor can they provide to the high class, high-end elite. Some customers value things simply because they are unique and not everyone bought one at Wal-Mart. They like to dress differently, show off their brands, and be above others because they have someone you can’t.
  • Your competencies are what you do well. It may be you as a person, or you as a firm. Vermont Teddy Bear took a well made bear, and offered a unique customized service to create the Bear-Gram which is loved the country over. Botht the product and service side of the bear-gram are high quality, unique, desired, and thus profitable.
  • When evaluating resources for use, whether it is a financial resource, marketing resource, or product component, it is important to ask four questions. If the test fails at any level, then the resource is truly not of value to the organization.
  • The Industry life cycle approach to small business is similar to the normal industry life cycle. Introduction stage is normally not yet profitable, sales are slow, and there are startup costs to recover. Growth stage kicks in when sales take off. Prices can rise, profitability comes in. Maturity is where sales start to level off. You can then focus on cutting costs and improving efficiency without sacrificing your offerings. Not all products or industries reach decline. Can you imagine the beer industry disappearing? The wagon wheel, on the other hand, has gone into decline.
  • Business Plans: Seeing Audiences and Your Business Clearly

    1. 1. Business Plans: Seeing Audiences and Your Business Clearly
    2. 2. <ul><li>Objectives </li></ul><ul><li>Understand why and when to develop a business plan </li></ul><ul><li>Know how to tell the business plan story </li></ul><ul><li>Learn the major sections of the classic business plan </li></ul><ul><li>Focus business plan sections to meet specific needs </li></ul><ul><li>Identify the major risks to business plan success </li></ul><ul><li>Master presenting your business plan to others </li></ul>8-
    3. 3. <ul><li>A business plan is a… </li></ul><ul><li>a) 5-10 word sentence or tagline </li></ul><ul><li>b) Document designed to detail major characteristics of a firm </li></ul><ul><li>c) A paragraph that describes the firm’s goals and competitive advantages </li></ul><ul><li>d) A 30-second action-oriented description of a business designed to sell the idea of the business to another </li></ul>Question 8-
    4. 4. <ul><li>Business Plan Background </li></ul><ul><li>Business plan : document designed to detail major characteristics of a firm </li></ul><ul><li>2 circumstances when a business plan is necessary: </li></ul><ul><ul><li>External legitimacy </li></ul></ul><ul><ul><li>Internal understanding </li></ul></ul>8-
    5. 5. <ul><li>External legitimacy : extent to which a small business is taken for granted, accepted, or treated as viable by organizations or people outside the small business or the owner’s family </li></ul><ul><li>Internal understanding : extent to which employees, investors, and family members in the business know the business’s purposes and operations </li></ul>8-
    6. 6. Starting Small and Building Up 8-
    7. 7. <ul><li>The Vision Statement </li></ul><ul><ul><li>5-10 word sentence or tagline </li></ul></ul><ul><ul><ul><li>Tagline : memorable catchphrase that captures the key idea of a business </li></ul></ul></ul><ul><ul><ul><li>Good way to present a vision statement </li></ul></ul></ul><ul><ul><li>Microsoft : “A computer on every desk, running Microsoft software.” </li></ul></ul>8-
    8. 8. <ul><li>The Mission Statement </li></ul><ul><ul><li>A paragraph that describes the firm’s goals and competitive advantages </li></ul></ul><ul><ul><li>Talks in terms of how it will make a difference in for the customer or the industry </li></ul></ul><ul><ul><li>Fantastic Gift Baskets : “The family at Fantastic Gift Baskets puts the same care and love into designing our gourmet gift baskets as you would…if you had the time!” </li></ul></ul>8-
    9. 9. <ul><li>The Elevator Pitch </li></ul><ul><ul><li>A 30-second action-oriented description of a business designed to sell the idea of the business to another </li></ul></ul><ul><ul><li>Leads with the hook , follows up with purpose of the service, ends with where business is now </li></ul></ul><ul><ul><li>What makes firm unique or superior? </li></ul></ul><ul><ul><li>Sounds like a sales pitch </li></ul></ul>8-
    10. 10. <ul><li>The 30-Second Business Plan </li></ul><ul><li>“ Elevator pitch&quot;--a carefully prepared, well-rehearsed summary of who you are, what you do and why you are better at it than anyone else </li></ul><ul><li>Verbal equivalent of your business card, but it needs to say much, much more, and it needs to say it very quickly </li></ul><ul><li>Practice, practice, practice - You never know when you will need your elevator pitch </li></ul>Example 8-
    11. 11. <ul><li>The Executive Summary </li></ul><ul><ul><li>Key component of the written business plan </li></ul></ul><ul><ul><li>One- to two-page (250-500 word) overview </li></ul></ul><ul><ul><li>Product, market, competitive advantages, management, business, finances </li></ul></ul><ul><ul><li>Single most important written part of plan </li></ul></ul><ul><ul><ul><li>Most widely distributed </li></ul></ul></ul><ul><ul><ul><li>Readers typically start with executive summary </li></ul></ul></ul>8-
    12. 12. <ul><li>The Classic Business Plan </li></ul><ul><li>Full (or classic) business plan : 25 single-spaced pages of text and 15 pages of financials and appendices </li></ul>8-
    13. 13. 8-
    14. 14. <ul><li>Business Plan Outline </li></ul><ul><li>Cover letter : one page document on business stationery </li></ul><ul><ul><li>Introduces business plan and owner </li></ul></ul><ul><ul><li>Indicates why recipient is being asked to read the plan </li></ul></ul>8-
    15. 15. <ul><li>Title Page : contains introductory information </li></ul><ul><ul><li>Company name </li></ul></ul><ul><ul><li>Contact information </li></ul></ul><ul><ul><li>Date this version of the plan was completed </li></ul></ul><ul><ul><li>Proprietary statement to protect your ideas </li></ul></ul><ul><ul><li>Possible items: </li></ul></ul><ul><ul><ul><li>Securities disclaimer </li></ul></ul></ul><ul><ul><ul><li>Name of person who prepared the business plan </li></ul></ul></ul><ul><ul><ul><li>Notice of copyright for the plan, or brands/logos </li></ul></ul></ul>8-
    16. 16. <ul><li>Table of contents : </li></ul><ul><ul><li>Lists major section headings </li></ul></ul><ul><ul><ul><li>Boldface type </li></ul></ul></ul><ul><ul><li>Sections underneath major sections </li></ul></ul><ul><ul><ul><li>Normal type </li></ul></ul></ul><ul><ul><li>Put page numbers on every page of the business plan </li></ul></ul>8-
    17. 17. <ul><li>The Company : </li></ul><ul><ul><li>Company description : 1-2 pp. </li></ul></ul><ul><ul><ul><li>Vision statement / mission statement </li></ul></ul></ul><ul><ul><ul><li>Specific goals </li></ul></ul></ul><ul><ul><ul><li>Company background : brief description of the company, the firm’s current status, and the history of the business </li></ul></ul></ul><ul><ul><ul><li>Business’ competitive advantage </li></ul></ul></ul>8-
    18. 18. <ul><li>The Company : </li></ul><ul><ul><li>Product/service and industry : 1-8 pp. </li></ul></ul><ul><ul><ul><li>Describe firm’s product or service </li></ul></ul></ul><ul><ul><ul><li>Include pictures </li></ul></ul></ul><ul><ul><ul><li>Explain how the customer uses the product </li></ul></ul></ul><ul><ul><ul><li>Proprietary technology </li></ul></ul></ul><ul><ul><ul><li>Industry descriptions </li></ul></ul></ul>8-
    19. 19. <ul><li>The Market : </li></ul><ul><ul><li>Market and target customer : 1-3 pp. </li></ul></ul><ul><ul><ul><li>Total population of people or firms you plan to sell to </li></ul></ul></ul><ul><ul><ul><li>Target customer section: focuses attention on who would buy </li></ul></ul></ul><ul><ul><ul><ul><li>Demographics’ relation to the product, how often they buy, and past experience </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Common to have multiple target audiences </li></ul></ul></ul></ul>8-
    20. 20. <ul><li>The Market : </li></ul><ul><ul><li>Competition and competitive advantage: 1-2 pp. </li></ul></ul><ul><ul><ul><li>Table : 1 p. </li></ul></ul></ul><ul><ul><ul><ul><li>Major competitors </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Competing product or service: market share, price, competitive advantages and disadvantages </li></ul></ul></ul></ul><ul><ul><ul><li>Text : 1 p. </li></ul></ul></ul><ul><ul><ul><ul><li>what makes product or service unique </li></ul></ul></ul></ul>8-
    21. 21. <ul><li>The Market : </li></ul><ul><ul><li>Marketing strategy : 1-3 pp. </li></ul></ul><ul><ul><ul><li>Overall strategy your firm pursues in the market </li></ul></ul></ul><ul><ul><ul><li>Sales plan that shows specific ways you apply strategy to secure sales from your customers </li></ul></ul></ul><ul><ul><ul><li>Longer-term competitive plan that shows how you protect your firm from efforts of the competition to unseat you </li></ul></ul></ul>8-
    22. 22. <ul><li>The Organization : </li></ul><ul><ul><li>Legal and organization structures : 1/2-1 p. </li></ul></ul><ul><ul><ul><li>Legal form of the business </li></ul></ul></ul><ul><ul><ul><li>Organizational structure of the firm </li></ul></ul></ul><ul><ul><ul><li>Makes clear how many employees there are and whether they are full time or part time, permanent or seasonal, family or non-family </li></ul></ul></ul>8-
    23. 23. <ul><li>The Organization : </li></ul><ul><ul><li>Key personnel : 1/2-3 pp. </li></ul></ul><ul><ul><ul><li>Sell the most important single element in the business plan – you! </li></ul></ul></ul><ul><ul><ul><li>Who are your key personnel? </li></ul></ul></ul><ul><ul><ul><li>Talk about accomplishments rather than just experience </li></ul></ul></ul><ul><ul><ul><li>Do not limit yourself to business </li></ul></ul></ul>8-
    24. 24. <ul><li>The Organization : </li></ul><ul><ul><li>Related service providers : 1/2-1 p. </li></ul></ul><ul><ul><ul><li>Identify your bank and banker, attorney and legal firm, accountant or bookkeeper, other consultants </li></ul></ul></ul><ul><ul><ul><li>Major relationships established with well-known suppliers or customers </li></ul></ul></ul><ul><ul><ul><li>Board of directors / board of advisors </li></ul></ul></ul>8-
    25. 25. <ul><li>The Organization : </li></ul><ul><ul><li>Location : 1/2 p. </li></ul></ul><ul><ul><ul><li>Description of the facility </li></ul></ul></ul><ul><ul><ul><li>How it meets strategic and sales goal of the business </li></ul></ul></ul><ul><ul><ul><li>Own, lease, or rent the property </li></ul></ul></ul><ul><ul><ul><li>Plan to expand the facilities </li></ul></ul></ul>8-
    26. 26. <ul><li>The Financials : </li></ul><ul><ul><li>Page 1 : Critical assumptions </li></ul></ul><ul><ul><li>Page 2 : The deal (if the plan is going to investors) </li></ul></ul><ul><ul><li>Page 3 : Income statement for Year 1, by month; assumptions marked by footnotes </li></ul></ul><ul><ul><li>Page 4 : Income statement for Year 2, by month, and Year 3 (and later if needed) by year; assumptions marked with footnotes </li></ul></ul>8-
    27. 27. <ul><li>The Organization : </li></ul><ul><ul><li>Page 5 : Cash flow statement for Year 1, by month; assumptions marked with footnotes </li></ul></ul><ul><ul><li>Page 6 : Cash flow statement for Year 2 by month, and Year 3 (and later if needed) by year; assumptions marked with footnotes </li></ul></ul><ul><ul><li>Page 7 : Balance sheet for years 1-3 (or 1-5) by year; assumptions marked with footnotes </li></ul></ul><ul><ul><li>Page 8 : Start-up cost budget </li></ul></ul><ul><ul><li>Page 9 : Assumptions page for financial statements </li></ul></ul>8-
    28. 28. <ul><li>The Appendices : </li></ul><ul><ul><li>Most popular appendix: one-page version of owner’s resume </li></ul></ul><ul><ul><li>Product or service pictures or specifications </li></ul></ul><ul><ul><li>Copies of signed contracts </li></ul></ul><ul><ul><li>Results from marketing studies or pilot sales efforts </li></ul></ul><ul><ul><li>Industry reports </li></ul></ul><ul><ul><li>Price lists for products or services </li></ul></ul><ul><ul><li>Advertising copy </li></ul></ul>8-
    29. 29. Question <ul><ul><li>What is it called when a business is operating prior to writing a plan for it? </li></ul></ul><ul><li>a) Pioneering business </li></ul><ul><li>b) New Entrant business </li></ul><ul><li>c) Existing business </li></ul><ul><li>d) Operational Plan </li></ul>8-
    30. 30. <ul><li>Focusing Your Business Plan </li></ul><ul><li>Pioneering business : product is truly new </li></ul><ul><li>New entrant business : product or service already exists </li></ul><ul><ul><li>Firm is first of its kind in your market </li></ul></ul><ul><li>Existing business : entrepreneurs start a business before they write a plan for it </li></ul><ul><li>Business with significant government involvement : zoning, environmental impact </li></ul>8-
    31. 31. <ul><li>Screening plan : basic overview of the firm and detailed look at the financials </li></ul><ul><li>Information plans : gives potential customers or suppliers information about the company and its product or service </li></ul><ul><li>Proof-of-concept website : internet-based type of plan designed to solicit information on customer interest </li></ul>8-
    32. 32. <ul><li>Invention plan : provides information to potential licensees </li></ul><ul><li>Operational plans : used as working document within a business </li></ul><ul><ul><li>Includes detailed specifications of the major techniques, methods, recipes, formula, and sources used by the firm to do its work </li></ul></ul>8-
    33. 33. <ul><li>Critical Risks </li></ul><ul><li>Overstated numbers </li></ul><ul><li>Uncertain sales (especially conversion rates) </li></ul><ul><li>Overlooked competition </li></ul><ul><li>Experience deficits </li></ul><ul><li>Inadequate cushion </li></ul><ul><li>Inadequate payback </li></ul>8-
    34. 34. <ul><li>Circle of advisors : </li></ul><ul><ul><li>Review the plan and help identify the critical risks and your coverage of them </li></ul></ul><ul><li>Service Corps of Retired Executives </li></ul><ul><li>Small Business Development Center </li></ul><ul><li>Ibis Associates </li></ul><ul><li>Kauffman Foundation’s Business EKG website </li></ul><ul><li>BizStats </li></ul>8-
    35. 35. <ul><li>How long should your business plan take to present? </li></ul><ul><li>a) 10-15 minutes with 15 minutes of questions </li></ul><ul><li>b) 5 minutes with 5 minutes of questions </li></ul><ul><li>c) 20 minutes with 5 minutes questions </li></ul><ul><li>d) Open discussion about plan lasting 20 minutes </li></ul>Question 8-
    36. 36. <ul><li>Presenting Your Plan </li></ul><ul><li>Plan presentations usually last 10-15 minutes </li></ul><ul><ul><li>15 or more minutes for questions </li></ul></ul><ul><li>Key things : </li></ul><ul><ul><li>Your passion for your business </li></ul></ul><ul><ul><li>Your expertise about the business and the plan </li></ul></ul><ul><ul><li>How professional you are in your work </li></ul></ul><ul><ul><li>How easy it would be to work with you </li></ul></ul>8-
    37. 37. Small Business Strategies: Imitation with a Twist
    38. 38. <ul><li>Objectives: </li></ul><ul><li>Learn the decisions needed to establish a foundation for strategic planning </li></ul><ul><li>Learn the forms of imitative and innovative businesses </li></ul><ul><li>Articulate the benefits that win over customers </li></ul><ul><li>Use SWOT analysis to identify strategic options </li></ul><ul><li>Under the major strategies of business-differentiation, cost, and focus </li></ul><ul><li>Use value chain analyses to apply strategy throughout the firm </li></ul><ul><li>Learn how to sustain competitive advantage through attracting customers and discouraging competition </li></ul>7-
    39. 39. <ul><li>Strategy in the Small Business </li></ul><ul><li>Strategy : the ideas and actions that explain how a firm will make its profit </li></ul><ul><ul><li>Good strategy leads to greater chances for survival and higher profits for small businesses </li></ul></ul><ul><ul><li>What makes a strategy “good” is its fit to the particulars of your business and the resources you can bring to it </li></ul></ul>7-
    40. 40. The Small Business Strategy Process 7-
    41. 41. <ul><li>1. Prestrategy: First Step of Strategic Planning </li></ul><ul><li>Goal is deciding on product or service you intend to offer and the general nature of your intended market </li></ul><ul><li>Industry : general name for line of product or service being sold, or the firms in that line of business </li></ul>7-
    42. 42. <ul><li>Industry </li></ul><ul><ul><li>Key is selecting an industry that offers good potential for making a profit </li></ul></ul><ul><ul><li>Also needs to offer attractive opportunities to work with a minimum of risk and competition </li></ul></ul><ul><ul><li>http://www.census. gov / epcd /naics02/ </li></ul></ul><ul><ul><li>Trade association : group of people in the same industry who band together to represent the industry to the public and government </li></ul></ul>7-
    43. 43. Question The size of the market refers to: a) scale b) market mass c) scope d) niche 7-
    44. 44. <ul><li>Market : business term for the population of customers for your product or service </li></ul><ul><li>Scale : size of the market </li></ul><ul><ul><li>Mass or Niche </li></ul></ul><ul><li>Scope : geographic range covered by the market </li></ul><ul><ul><li>Local to Global </li></ul></ul>7-
    45. 45. <ul><li>Scale : most industries have both mass and niche markets </li></ul><ul><ul><li>Mass market : large portions of the population </li></ul></ul><ul><ul><ul><li>Example: all men, all women, all teens, et al </li></ul></ul></ul><ul><ul><ul><li>Mass market is broad </li></ul></ul></ul><ul><ul><li>Niche market : narrowly defined segment of the population that is likely to share interests or concerns </li></ul></ul><ul><ul><ul><li>Example: Hallmark vs. SimplyShe </li></ul></ul></ul>7-
    46. 46. <ul><li>3 Rules for Niche Marketing </li></ul><ul><li>Niche marketing can be extremely cost-effective </li></ul><ul><li>Niche marketing can be a low risk way to grow your business following 3 rules: </li></ul><ul><ul><li>Meet their unique needs </li></ul></ul><ul><ul><li>Say the right thing </li></ul></ul><ul><ul><li>Always test-market </li></ul></ul>Example <ul><ul><li> marketingcolumnistkimtgordon /article49608.html </li></ul></ul>7-
    47. 47. <ul><li>Scope : local or global </li></ul><ul><ul><li>Can be local, regional, national, international, or global </li></ul></ul><ul><ul><li>Scope is important for two reasons: </li></ul></ul><ul><ul><ul><li>Knowing your scope helps deciding where to focus sales and advertising efforts </li></ul></ul></ul><ul><ul><ul><li>Knowing your target market gives you a way to know which competitors to worry about most, namely those within your market scope </li></ul></ul></ul>7-
    48. 48. <ul><li>Imitative strategy : doing more or less what others are doing </li></ul><ul><ul><li>Classic small business strategy </li></ul></ul><ul><ul><li>Almost 2/3 of people starting business use this approach </li></ul></ul><ul><ul><li>Advantages : existing technologies, possibility to buy existing businesses, customers already know what you are offering </li></ul></ul>7-
    49. 49. <ul><li>Degree of similarity : extent to which a product or service is like another </li></ul><ul><ul><li>Imitation is not likely to match precision or completeness or copying seen in franchising </li></ul></ul><ul><ul><li>Imitation plus one degree of similarity: copying of existing businesses with the exception of one or two key aspects in hopes of improving them </li></ul></ul><ul><li>Pure innovation : new product or service, also with a unique setting </li></ul>7-
    50. 50. <ul><li>Tool: Industry Analysis </li></ul><ul><li>Industry analysis (IA): a research process that provides the entrepreneur with key information about the industry, such as current situation and trends </li></ul><ul><ul><li>Helps to estimate possible financial returns </li></ul></ul>7-
    51. 51. <ul><li>Basics of Industry Analysis </li></ul><ul><ul><li>SIC/NAICS number and description: online </li></ul></ul><ul><ul><li>Industry size over time: online </li></ul></ul><ul><ul><li>Profitability </li></ul></ul><ul><ul><li>How profits are made: interview or articles </li></ul></ul><ul><ul><li>Target market competitor concentration: directory checking </li></ul></ul><ul><ul><li>Analysis </li></ul></ul><ul><ul><li>Sources </li></ul></ul>7-
    52. 52. <ul><li>2. Benefits: Second Step of Strategic Planning </li></ul><ul><li>Benefits : characteristics of a product or service that the target customer would consider worthwhile (low cost or high quality) </li></ul><ul><ul><li>Key decision is deciding what benefits you plan to offer to your customer </li></ul></ul>7-
    53. 53. <ul><li>Value Benefits </li></ul><ul><ul><li>Quality </li></ul></ul><ul><ul><li>Style </li></ul></ul><ul><ul><li>Delivery </li></ul></ul><ul><ul><li>Service </li></ul></ul><ul><ul><li>Technology </li></ul></ul><ul><ul><li>Shopping Ease </li></ul></ul><ul><ul><li>Personalization </li></ul></ul><ul><ul><li>Assurance </li></ul></ul><ul><ul><li>Place </li></ul></ul><ul><ul><li>Credit </li></ul></ul><ul><ul><li>Brand/reputation </li></ul></ul><ul><ul><li>Belonging </li></ul></ul><ul><ul><li>Altruism </li></ul></ul><ul><li>Cost Benefits </li></ul><ul><ul><li>Lower costs </li></ul></ul><ul><ul><li>Scale savings </li></ul></ul><ul><ul><li>Scope </li></ul></ul><ul><ul><li>savings </li></ul></ul><ul><ul><li>Learning </li></ul></ul><ul><ul><li>Organizational practices </li></ul></ul>7-
    54. 54. <ul><li>Leveraging Opportunities During Entry </li></ul><ul><li>7 Entry Wedges </li></ul><ul><ul><li>Supply shortages </li></ul></ul><ul><ul><li>Unutilized resources </li></ul></ul><ul><ul><li>Customer contracting </li></ul></ul><ul><ul><li>Second sourcing </li></ul></ul><ul><ul><li>Market relinquishment </li></ul></ul><ul><ul><li>Favored purchasing </li></ul></ul><ul><ul><li>Government rules </li></ul></ul>7-
    55. 55. <ul><li>What are the components of a SWOT analysis? </li></ul><ul><li>a) small, working conditions, organization, time </li></ul><ul><li>b) social, weaknesses, opportunities, technology </li></ul><ul><li>c) strengths, weaknesses, opportunities, threats </li></ul><ul><li>d) segment, wealth, organization, technology </li></ul>Question 7-
    56. 56. <ul><li>Tool: SWOT Analysis </li></ul><ul><li>S : Strength W : Weakness O : Opportunity T : Threat </li></ul><ul><ul><li>SWOT looks critically at these factors </li></ul></ul><ul><ul><li>Used to organize and perform an analysis of your company’s current and future resources and situations </li></ul></ul>7-
    57. 57. <ul><li>SWOT: Strengths </li></ul><ul><ul><li>Customers ready to buy </li></ul></ul><ul><ul><li>Specialized knowledge </li></ul></ul><ul><ul><li>Trade secrets </li></ul></ul><ul><ul><li>Patents, trademarks, copyrights </li></ul></ul><ul><ul><li>Brand or personal recognition </li></ul></ul><ul><ul><li>Prior self-employment experience </li></ul></ul><ul><ul><li>Prior sales experience </li></ul></ul>7-
    58. 58. <ul><li>SWOT: Weaknesses </li></ul><ul><ul><li>Customers not ready to buy </li></ul></ul><ul><ul><li>Inadequate financial backing </li></ul></ul><ul><ul><li>Easy-to-copy business </li></ul></ul><ul><ul><li>Undistinctive product, service, or brand </li></ul></ul><ul><ul><li>Location or facility disadvantages </li></ul></ul><ul><ul><li>Lack of self-employment experience </li></ul></ul><ul><ul><li>Lack of managerial experience </li></ul></ul>7-
    59. 59. <ul><li>SWOT: Opportunities (from entry wedges) </li></ul><ul><ul><li>Supply shortages </li></ul></ul><ul><ul><li>Unutilized resources </li></ul></ul><ul><ul><li>Customer contracting </li></ul></ul><ul><ul><li>Second sourcing </li></ul></ul><ul><ul><li>Favored purchasing </li></ul></ul><ul><ul><li>Technology creating new products/services </li></ul></ul><ul><ul><li>New markets opening up </li></ul></ul>7-
    60. 60. <ul><li>SWOT: Threats </li></ul><ul><ul><li>Economic downturn </li></ul></ul><ul><ul><li>Oversupply </li></ul></ul><ul><ul><li>Competitive pressures </li></ul></ul><ul><ul><li>Supplier/customer pressures </li></ul></ul><ul><ul><li>Major supplier/customer loss </li></ul></ul><ul><ul><li>Missed window of opportunity </li></ul></ul><ul><ul><li>Negative government regulations or actions </li></ul></ul>7-
    61. 61. Inside the Firm 7-
    62. 62. <ul><li>SWOT Analysis </li></ul><ul><li>Final stage of SWOT analysis is to match it against the benefits sought by your market </li></ul><ul><li>Strengths should match or support the benefits </li></ul><ul><li>Weaknesses should not get in the way of delivering the desired benefits </li></ul>7-
    63. 63. <ul><li>Use SWOT to Kick-Start Your Planning </li></ul><ul><li>The SWOT analysis--evaluating strengths, weaknesses, opportunities and threats--is one good way to start thinking strategically </li></ul><ul><li>As you perform a SWOT analysis, try to involve other people; it improves the brainstorming value </li></ul><ul><li>To clarify, strengths and weaknesses are about you and your company, its nature, history, and what it does and doesn't do well </li></ul><ul><li>Threats and opportunities are external-- factors outside of your business </li></ul>Example startingabusiness / businessplans / businessplancoachtimberry /article182034.html 7-
    64. 64. Question Which strategy is clarifying how one product is unlike another in a mass market? a) mass market strategy b) focus strategy c) cost strategy d) differentiation strategy 7-
    65. 65. <ul><li>Strategy Suggestion </li></ul><ul><li>3 Classic Strategies </li></ul><ul><ul><li>Differentiation strategy : clarifying how one product is unlike another in a mass market </li></ul></ul><ul><ul><li>Cost strategy : firm offers a combination of cost benefits that appeals to the customer </li></ul></ul><ul><ul><li>Focus strategy : targets a portion of the market (segment or niche) </li></ul></ul>7-
    66. 66. <ul><li>7 Small Business Supra-Strategies </li></ul><ul><ul><li>Craftsmanship </li></ul></ul><ul><ul><li>Customization </li></ul></ul><ul><ul><li>Super-support </li></ul></ul><ul><ul><li>Serving the underserved/interstices </li></ul></ul><ul><ul><li>Elite </li></ul></ul><ul><ul><li>Single-mindedness </li></ul></ul><ul><ul><li>Comprehensiveness </li></ul></ul>7-
    67. 67. <ul><li>Competitive Advantage </li></ul><ul><li>Resources : Any asset, capability, organizational process, information, or knowledge that contributes to the firm’s performance </li></ul><ul><ul><li>Tangible resources : easily identified </li></ul></ul><ul><ul><ul><li>Financial (cash), Physical (land) </li></ul></ul></ul><ul><ul><li>Intangible resources : typically informational and and expertise-based practices and routines that are not clearly evident </li></ul></ul><ul><ul><ul><li>Human (skill), Reputation (trust) </li></ul></ul></ul>7-
    68. 68. <ul><li>Organizational capabilities : abilities, skills, and competencies used by the firm to make profits from tangible and intangible resources </li></ul><ul><li>Transformational competencies : firm can make its product or service better in value </li></ul><ul><li>Combinational competencies : combining tangible and intangible resources </li></ul><ul><ul><li>Vermont Bear Company’s Bear-Gram </li></ul></ul>7-
    69. 69. <ul><li>The VRIO Analysis </li></ul><ul><ul><li>Test 1: Value – does the resource help you increase sales or decrease costs </li></ul></ul><ul><ul><li>Test 2: Rareness – is the resource rare enough that you can charge more than competitors without the resource </li></ul></ul><ul><ul><li>Test 3: Imitability – can the competition imitate the resource </li></ul></ul><ul><ul><li>Test 4: Organization – can the firm make use of the resource </li></ul></ul>7-
    70. 70. 7-
    71. 71. Entrepreneurial Strategy: Generating and Exploiting New Entries McGraw-Hill/Irwin Entrepreneurship, 7/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
    72. 72. What is a New Entry? <ul><li>Offering a new product to an established or new market. </li></ul><ul><li>Offering an established product to a new market. </li></ul><ul><li>Creating a new organization. </li></ul>
    73. 73. Entrepreneurial Strategy: The Generation and Exploitation of New Entry Opportunities
    74. 74. Resources: Source of Competitive Advantage <ul><li>Basic building blocks to a firm’s functioning and performance. </li></ul><ul><ul><li>Inputs into the production process. </li></ul></ul><ul><ul><li>Can be combined in different ways. </li></ul></ul><ul><ul><li>Provides a firm its capacity to achieve superior performance. </li></ul></ul><ul><li>Resources need to be: </li></ul><ul><ul><li>Valuable. </li></ul></ul><ul><ul><li>Rare. </li></ul></ul><ul><ul><li>Inimitable. </li></ul></ul>
    75. 75. Creating a Resource Bundle <ul><li>Entrepreneur possesses ability to obtain and recombine resources. </li></ul><ul><ul><li>Market knowledge: information, technology, know-how/skills that provide insight to market/customers. </li></ul></ul><ul><ul><li>Technological knowledge: information, technology know-how/skills that provide insight to create new knowledge. </li></ul></ul>
    76. 76. Assessing Attractiveness: Information on a New Entry <ul><li>Prior knowledge and information search </li></ul><ul><ul><li>More knowledge ensures a more efficient search process. </li></ul></ul><ul><ul><li>Search process represents a dilemma for an entrepreneur. </li></ul></ul><ul><ul><li>Costs: both money and time. </li></ul></ul><ul><li>Window of opportunity </li></ul><ul><ul><li>Period of time when the environment is favorable for entrepreneurs to exploit a particular new entry </li></ul></ul>
    77. 77. Comfort with Making a Decision under Uncertainty <ul><li>Dilemma arising from the trade-off between more information and the likelihood of closure of the window of opportunity. </li></ul><ul><ul><li>Error of commission: n egative outcome from acting. </li></ul></ul><ul><ul><li>Error of omission: n egative outcome from not acting. </li></ul></ul>
    78. 78. Decision to Exploit or Not to Exploit the New Entry Opportunity
    79. 79. Strategy for New Entry: First-Mover Advantages <ul><li>Develop a cost advantage. </li></ul><ul><li>Face less competitive rivalry. </li></ul><ul><li>Can secure important channels. </li></ul><ul><li>Better positioned to satisfy customers. </li></ul><ul><li>Gain expertise through participation. </li></ul>
    80. 80. First Mover (Dis)Advantages (1 of 2) <ul><li>Demand uncertainty: difficulty in estimating </li></ul><ul><ul><li>Potential size of the market. </li></ul></ul><ul><ul><li>How fast it will grow. </li></ul></ul><ul><ul><li>Key dimensions along which it will grow. </li></ul></ul><ul><li>Technological uncertainty: difficulty in assessing </li></ul><ul><ul><li>Whether the technology will perform. </li></ul></ul><ul><ul><li>Whether alternate technologies will emerge and leapfrog over current technologies </li></ul></ul>
    81. 81. First Mover (Dis)Advantages (2 of 2) <ul><li>Adaptation: difficulty to adapt to the new environmental conditions. </li></ul><ul><li>Customer uncertainty: difficulty in accurately assessing whether the new product or service provides value for them. </li></ul><ul><ul><li>Overcoming customer uncertainty: </li></ul></ul><ul><ul><ul><li>Informational advertising. </li></ul></ul></ul><ul><ul><ul><li>Highlight product benefits over substitutions. </li></ul></ul></ul><ul><ul><ul><li>Create frame Of reference for potential customer. </li></ul></ul></ul><ul><ul><ul><li>Educate customer- set industry standard, customer loyalty. </li></ul></ul></ul>
    82. 82. Lead Time and First Mover <ul><li>Lead time: grace period in which the first mover operates in the industry under conditions of limited competition. </li></ul><ul><li>Creating barriers to entry for competition: </li></ul><ul><ul><li>Building customer loyalties . </li></ul></ul><ul><ul><li>Building switching costs . </li></ul></ul><ul><ul><li>Protecting product uniqueness . </li></ul></ul><ul><ul><li>Securing access to important sources of supply and distribution . </li></ul></ul>
    83. 83. Risk Reduction Strategies <ul><li>Risk: probability of, and magnitude of, downside loss. </li></ul><ul><li>Derived from entrepreneur’s uncertainties over: </li></ul><ul><ul><li>Market demand. </li></ul></ul><ul><ul><li>Technological development. </li></ul></ul><ul><ul><li>Actions of competitors. </li></ul></ul><ul><li>Two such strategies: </li></ul><ul><ul><li>Market scope. </li></ul></ul><ul><ul><li>Imitation. </li></ul></ul>
    84. 84. Market Scope Strategies: Narrow Scope <ul><li>Scope: choice about which customer groups to serve and how to serve them. </li></ul><ul><li>Narrow scope: offers a small product range to a small number of customer groups to satisfy a particular need. </li></ul><ul><ul><li>Focuses on producing customized products, localized business operations, and high levels of craftsmanship. </li></ul></ul><ul><ul><li>Focuses on a specific group of customers. </li></ul></ul><ul><ul><li>High-end of the market represents a highly profitable niche. </li></ul></ul>
    85. 85. Market Scope Strategies: Broad Scope <ul><li>Offers a range of products across many different market segments. </li></ul><ul><ul><li>Strategy emerges through the information provided by a learning process. </li></ul></ul><ul><ul><li>Opens the firm up to many different “fronts” of competition. </li></ul></ul><ul><ul><li>Reduction of risks associated with market uncertainties. </li></ul></ul>
    86. 86. Imitation Strategy <ul><li>Involves copying the practices of other firms. </li></ul><ul><ul><li>C annot be rare or inimitable. </li></ul></ul><ul><li>Why Do It? </li></ul><ul><ul><li>Minimizes risk of downside loss associated with a new entry. </li></ul></ul><ul><li>Advantages: </li></ul><ul><ul><li>Easier to imitate the practices of a successful firm. </li></ul></ul><ul><ul><li>Can help develop skills necessary to be successful in the industry. </li></ul></ul><ul><ul><li>Provides organizational legitimacy. </li></ul></ul>
    87. 87. Types of Imitation Strategies <ul><li>Franchising: focuses on imitation to reduce the risk of downside loss for the franchisee. </li></ul><ul><li>“ Me-too” strategy: copying products that already exist and attempting to build an advantage through minor variations. </li></ul><ul><ul><li>Might be more difficult to successfully implement than initially expected </li></ul></ul><ul><ul><li>Can potentially: </li></ul></ul><ul><ul><ul><li>Reduce the entrepreneur’s costs associated with R&D. </li></ul></ul></ul><ul><ul><ul><li>Reduce customer uncertainty over the firm. </li></ul></ul></ul><ul><ul><ul><li>Make the new entry look legitimate from day one. </li></ul></ul></ul>
    88. 88. Managing Newness <ul><li>Liabilities of newness arise from unique conditions: </li></ul><ul><ul><li>Costs in learning new tasks. </li></ul></ul><ul><ul><li>Conflict arising from overlap or gaps in responsibilities. </li></ul></ul><ul><ul><li>Establishing formal and informal structures of communication. </li></ul></ul><ul><li>New firm need to: </li></ul><ul><ul><li>Pay special attention in education and training employees. </li></ul></ul><ul><ul><li>Help employees develop knowledge and skills quickly. </li></ul></ul><ul><ul><li>Foster activities to foster informal relationships and a functional corporate culture. </li></ul></ul>
    89. 89. Assets of Newness <ul><li>Lack of established routines, systems, and processes provide a clean slate, giving a learning advantage. </li></ul><ul><li>Heightened ability to learn new knowledge in a continuously changing environment. </li></ul><ul><li>Flexibility and ability to accommodate new knowledge. </li></ul>