Download FOE Chapters 1 through 5 Exam I slides revised sep 25

Chapter 1
The Power of
Entrepreneurship
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Definition of entrepreneurship
Schumpeter
An entrepreneur is the person who destroys the existing economic
order by introducing new products and services, by introducing
new methods of production, by creating new forms of organization,
or by exploiting new raw materials.
Simpler
An entrepreneur is the person who perceives an opportunity and
creates an organization to pursue it.
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Business in the US
Part-time
employees
24 million
businesses
99.5% are small
businesses
(with 500 or fewer
employees)
Full-time
employees
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Have only
1 employee
10-year survival rates of business
establishments
81 % survive
40 % survive
1 year
5 years
2 years
10 years
65 % survive
25 % survive
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Web 2.0 companies
• From 2002 to 2006, some 40
percent of Web 2.0 deals were
located in the Bay Area. That
figure dropped to just 20
percent during the first half.
• From 2006-2007, valuations of
Web 2.0 companies doubled
over the last year – VCs have
to invest more than double the
amount to get the same
ownership slice as they did in
2006.
Change in share price for Web
2.0 companies since 2012
Chapter 2
The Entrepreneurial
Process
Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. ©
A model of the entrepreneurial process
PERSONAL
PERSONAL
SOCIOLOGICAL
PERSONAL
ORGANIZATIONAL
Achievement
Locus of Control
Ambiguity Tolerance
Risk Taking
Networks
Entrepreneur
Job Dissatisfaction
Job Loss
Teams
Parents
Leader
Education
Age
Gender
Family
Commitment
Team
Strategy
Structure
Culture
Products
Role Models
Vision
Risk Taking
Personal Values
Education
Experience
Opportunity recognition
INNOVATION
Manager
Advisors
Commitment
Resources
TRIGGERING EVENT
IMPLEMENTATION
GROWTH
ENVIRONMENT
ENVIRONMENT
ENVIRONMENT
Opportunities
Role Models
Creativity
Economy
Competition
Competitors
Customers
Suppliers
Investors
Bankers
Lawyers
Resources
Government policy
Resources
Incubator
Government policy
Economy
Based on Carol Moore's Model (Moore 1986)
Entrepreneurship Defined:
Entrepreneur: someone who perceives an opportunity and builds an
organization to pursue that opportunity.
Entrepreneurship involves all the functions, activities, and actions associated
with perceiving opportunities and creating organizations to pursue them. These
include:
–Market and Customer Research
–Service and Product Innovation
–Team Building
–Finding & Managing Resources
–Leadership
–Etc…
Factors Influencing the
Decision to Start a Company
Personal
Attributes
•Higher Internal Locus of Control
•Desire for Financial Success
•Desire to Achieve Self-Realization
•Desire for Recognition
•Joy of Innovation
•Risk Tolerance
Environmental
Factors
•Local, Regional, or National attitudes
towards entrepreneurship
•Social and cultural pressures for or
against risk taking and entrepreneurship
•Access to entrepreneurial role models
•Responsibilities to family and
community
Remember: No single type of person is best suited for entrepreneurship!
Entrepreneurs come from all walks of life, backgrounds, etc!
Before Making the Commitment Would be
Entrepreneurs Must:
1) Assess their own financial reality.
It can be very difficult to sustain a salary in the early years of starting a new business,
and as a result it is essential for would be entrepreneurs to work through their own
personal income needs. If they have a family or other responsibilities that make taking
a financial risk more difficult, entrepreneurs must complete an honest assessment of
whether and when the company will be able to match past salary levels.
2) Identify key contacts in their networks.
The people in an entrepreneur’s network are his or her greatest potential source of
capital, clients, employees, and feedback. Before jumping into an entrepreneurial
endeavor it’s essential to take an inventory of the resources in one’s network.
3) Reach out to sources of free advice and feedback.
Most people root for the underdog, and as a result would be entrepreneurs have at their
disposal the advice and good will of countless people in their communities and the
business world at large. The best entrepreneurs reach out to these communities for all
the free advice and wisdom they can get.
The Timmons Model for Entrepreneurial Success:
Uncertainty
Opportunity
Entrepreneur
Fits & Gaps
Business plan
Uncertainty
Uncertainty
Resources
The Tenets of the Timmons Model:
1) The Opportunity
–Is there a clear customer need for the proposed product or service?
–Is the timing right: is the team ready, is the market ready?
–Ideas are a dime a dozen – it’s the combination of the factors above and the
execution of the business plan that makes an idea an opportunity.
2) The Lead Entrepreneur and Management Team
–Experience within the proposed industry can be essential to success.
–Investors and other backers prefer to see a track record of driving growth and profits.
–An ‘A’ team with a ‘B’ idea is almost always better than the opposite.
3) The Resources
–Resources include capital, technology, equipment, and most importantly – people.
–The entrepreneur’s mantra is one of Low Overhead, High Productivity, and Controlling
but not Owning resources.
–The best entrepreneurs are incredibly creative at finding ways to get things done
inexpensively and effectively. You can always find ways to do things faster,
cheaper, or better!
There are Two Key Forms
of Start Up Capital
Debt
•Requires no transfer of ownership of
the company.
•Presents potential for higher risk for
the entrepreneur.
•Requires repayment, and therefore
careful cash flow planning.
Equity
•Investors gain an ownership stake in
the company through a transfer of
shares.
•This transfers most of the risk to the
investor, which explains the costs and
expected returns.
•Does not require repayment, but does
require careful capital planning and
investment.
Remember: Most companies will never take on outside investors,
and many will never use debt financing for growth.
Happiness is a Positive Cash Flow!
It’s Essential to Understand the Difference between Profits and Cash Flow:
–A profitable company can have a negative cash flow and risk running out of money.
–An unprofitable company can have a positive cash flow and be on a healthy trajectory.
Profit is measured as a Gain or Loss on the Income Statement, however…
–It is typically measured on an accrual basis, and therefore does not accurately
reflect the cash inflows and outflows of the company.
–Some transactions of cash occur off the Income Statement, and therefore impact cash
flow but not profits. A good example is repayment of a loan, which reduces cash
balances but has no impact on profits or losses.
Cash Flow measures the increase/decrease of cash during a given timeframe:
–It is comprised of three elements: operations, investing, and financing.
–Each of these areas can have a tangible impact on the Cash Flows of a business, and
must be planned and monitored closely.
–Positive or Negative Cash Flows are not necessarily good or bad on their own. What
matters is the context – is the company growing, struggling, etc?
Entrepreneurial opportunities
Attractive, timely, durable, provide
value
Defined
• Situations in which new goods, services,
raw materials, and organizing methods
can be introduced and sold at a price that
is greater than their cost of production
(Casson, 1982)
• An opportunity that is attractive, durable,
timely, and grounded in a product or
service that delivers value to a customer
(Armstrong)
Run a prison!
•
•
•
•
Timely?
Durable?
Attractive?
Grounded in a
product or service
that delivers value
to a customer?
Pet rocks!
•
•
•
•
Timely?
Durable?
Attractive?
Grounded in a
product or service
that delivers value
to a customer?
Type writer repair!
•
•
•
•
Timely?
Durable?
Attractive?
Grounded in a
product or service
that delivers value
to a customer?
“Handheld electronic device”
•
•
•
•
Timely?
Durable?
Attractive?
Grounded in a
product or service
that delivers value
to a customer?
Apple Newton Message Pad, 1993-1998
Takeaways
• You must meet all criteria (attractive,
timely, durable, provides value) to ensure
quality of opportunity
• Experiment, prototype, and protect
intellectual property (see Apple Newton
example)
• Prepare for imitators – what is unique
about your offering?
Opportunity Recognition,
Shaping and
Re-shaping
Idea-to-opportunity transition
Seed of idea
Passion
Professional
Experience
Idea
Idea
Multiplication
Viable
Opportunity
Designing a better consumer
experience
1. Observation
2. Brainstorming
3. Rapid
prototyping
4. Refining
5. Implementing
The opportunity space
Global Business
Environment
Competitors
Suppliers
Your Company
Customers
Competitors
Competitors
Government Regulations
The customer
Target Audience Categories
Primary
Target Audience
Secondary
Target Audience
Tertiary
Target Audience
Common Demographic/Psychographic Categories
Demographics
Age
Gender
Household Income
Family Size/Family Lifecycle
Occupation
Education Level
Religion
Ethnicity/Heritage
Nationality
Social Class
Marital Status
Psychographics
Social group (e.g., white collar, blue
collar, etc.)
Lifestyle (e.g., mainstream, sexual
orientation, materialistic, active, athletic,
etc.)
Personality Traits (Worriers, Type A’s,
Shy, Extroverted, etc.)
Values (Liberal, Conservative, OpenMinded, Traditional, etc.)
Macro trends
Important Trends over the Last 50 Years
Trend
Impact
Baby Boom Generation
Pampers, Rock & Roll, Television,
Minivans, Real Estate,
McMansions, etc.
Personal Computing
Internet, media on demand,
electronic publishing,
spreadsheets, electronic
communication
Obesity
Drain on healthcare system, growth
of diet industry, changes in food
industry, health clubs, home gyms
Dual-Income households
Child care, Home services –
landscaping, house cleaning,
prepared foods
Market Adoption
S-curve
1
2
Time
3
Setting prices
Price
Penetration Pricing
Strategy
Cost-plus Pricing
Strategy
Assessing Market
Prices for Competing
Products
Strategy
Requires
Enormous
Financing
Price May Not
Match
The Value
The Best Option
Reaching customer – the value
chain
Example - Value Chain of Gourmet Chili
Base
Ingredients
-Beef,
Sauce, etc.
-From Food
Distributor
Gourmet
Chili
Food
Distributors
Grocery
Stores
Example in Excel
Business Models
Using the “business model
canvas”
The business model canvas
1 Customer Segments
The Customer
Segments Building
Block defines
the different groups
of people or
organizations an
enterprise aims to
reach and serve
Customer Segments
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
Examples of Customer
Segments
•
•
•
•
•
Mass market
Niche market
Segmented
Diversified
Multi-sided platforms (or multi-sided
markets)
2 Value Propositions
The Value Propositions
Building Block describes
the bundle of products
and services that create
value for a specific
Customer Segment
The Value Proposition is
the reason why customers
turn to one company over
another.
Examples of Value Propositions
•
•
•
•
•
•
•
Newness
Performance
Customization
“Getting the job done”
Design
Brand/status
Price
3 Channels
The Channels Building Block describes
how a company communicates with and
reaches its Customer Segments to deliver
a Value Proposition
Channels
• Communication, distribution, and
sales Channels comprise a
company's interface with customers.
• Channels are customer touch points
that play an important role in the
customer experience.
Channels
• Channels serve several functions,
including:
– Raising awareness among customers
about a company’s products and services
– Helping customers evaluate a company’s
value Proposition
– Allowing customers to purchase specific
products and services
– Delivering a Value Proposition to
customers
– Providing post-purchase customer support
Channels – Key Questions
• Through which Channels do our Customer
want to be reached?
• How are we reaching them now?
• How are our Channels integrated?
• Which ones work best?
• Which ones are most cost-efficient?
• How are we integrating them with
customer routines?
Channel phases
1. Awareness: raise awareness about products
and services
2. Evaluation: help customers evaluate product
3. Purchase: how do customers purchase?
4. Delivery: deliver the value proposition to the
customer
5. After sales: provide post-purchase customer
support
4 Customer relationships
• The Customer Relationships Building
Block describes the types of
relationships a company establishes
with specific Customer Segments
• Driven by customer acquisition,
retention, and upselling
Categories of customer
relationships
• Personal assistance
• Dedicated personal assistance (bankers for high
net worth individuals)
• Self-service (no direct relationship with
customer)
• Automated service (personal online profiles give
access to personalized services)
• Communities (especially online)
• Co-creation (e.g., Amazon’s customers write
reviews, eBay’s seller ratings)
5 Revenue Streams
1. Transactions from one-off customer
payments
2. Recurring revenues from ongoing
payments for continuous delivery of
value proposition or post-purchase
consumer support
Revenue Streams come from
1. Asset sales – sales of a physical product
2. Usage fee – minutes on phone, nights in hotel
room
3. Subscription fees – selling continuous access to
a service
4. Lending/renting/leasing – temporarily grant
exclusive access to an asset
5. Licensing – give customers permission to use
protected IP
6. Brokerage fees – intermediation services
7. Advertising – fees for promoting product, service,
or brand
6 Key resources
• Allow the business to create and deliver
the value proposition, reach customers,
maintain relationships, and generate
revenues
• Physical, financial, intellectual, human ;
owned, leased, or borrowed
7 Key activities
• Actions a company must take to be
successful
• Microsoft – develop software, Facebook –
develop platforms, Dell – supply chain
management, McKinsey – problem solving
• Categories: production, problem solving,
platform/network
8 Key partnerships
•
•
Alliances to optimize business models,
reduce risk, or acquire resources
Four types
1.
2.
3.
4.
Strategic alliances between non-competitors
Cooperation between competitors
Joint ventures to develop new businesses
Buyer-supplier relationships to ensure
reliable supplies
9 Cost structure
• The costs associated with the other 8
pieces of the business model
• Approaches: cost-driven versus valuedriven
• Characteristics: fixed, variable, economies
of scale, economies of scope
Chapter 5
Entrepreneurial Marketing
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Entrepreneurial Marketing
Definition of marketing by the American Marketing
Association:
an organizational function and a set of processes for creating,
communicating, and delivering value to customers and for
managing customer relationships in ways that benefit the
organization and its stake holders.
Marketing practices vary depending on the type of company and
the products and services it sells.
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Entrepreneurial Marketing
Why Marketing is Critical for Entrepreneurs
Because no venture can become established and grow without
a customer market;
Because it is difficult and expensive to bring new products and
services to market;
To differentiate product or service to customers makes the
company distinctive and valuable;
Companies must be able to switch marketing gears quickly to
attract new customer segments.
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Entrepreneurial Marketing
Entrepreneurs Face Unique Marketing Challenges
limited resources in financial, managerial, and time;
limited market information;
decision-making inclined to be muddled by personal biases
and beliefs;
poorly established relations with multiple audiences.
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Entrepreneurial Marketing
Acquiring Market Information
Marketing research could cover information such as:
-Product attributes important to customers;
-Possibility of customers’ buying willingness by
marketing behaviors;
-Market trend;
-The location of the customers’ preference.
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Entrepreneurial Marketing
Acquiring Market Information
Two basic types of market data
•Primary data
•Data you collect yourself
•Limitations of primary data
•Secondary data
•Economical and usually used to collect baseline
information
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Market dynamics
• Entrepreneurs are more successful in
large and growing markets
– Large markets amortize the fixed costs of
getting started over a larger number of units
– It’s easier to sell into rapidly growing markets
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Market dynamics
• The performance of product adoption
follows an S shape
– Initially, need a large amount of effort to
achieve small improvements in product
performance
– Then performance improvements accelerate
and small efforts can lead to large
improvements
– Later, must make large efforts to achieve
small improvements
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Market dynamics
• Established firms rarely compete with
entrepreneurs to develop new products on
the early part of the S curve
– The new product usually begins with inferior
performance that hurts the company’s overall
performance
– Managers of established companies believe
they can always improve the performance of
their existing products to compete with new
products
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Entrepreneurial Marketing
Marketing Strategy for Entrepreneurs
A company’s marketing strategy must closely align with its
resources and capabilities;
Segmentation, targeting, and positioning are key marketing
dimensions that set the strategic framework.
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Entrepreneurial Marketing
Marketing Strategy for Entrepreneurs/the Marketing Mix
promotion
Product
Strategy
Pricing Strategy
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
place
Entrepreneurial Marketing
Entrepreneurial Marketing
Marketing Skills for Managing Growth
Understanding and Listening to the Customer
Building brand awareness and building brand equity
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©