Small Business Administration ADMN3306

1. Small Business AdministrationADMN3306 Professor: Bob Carpenter

2. Upcoming Sessions • Visit by the Business Development centre to talk about young entrepreneurs and the Ontario Summer Company program. Jan 22nd. • Visit by Mark Sherry. “What makes business great and what makes a great business.”

3. Today’s Agenda • Entrepreneurial self testing • Competitive advantage • Examples • Ideas Search progress • Creativity and Innovation • Strategic Management • Preparation for next meeting

4. Self evaluation

5. What to do? • How Will You Decide What Produce Or Service You Will Offer? • A) Your hobby is working on cars/sewing/baking/etc. and you will convert your hobby into a business.B) You have some knowledge about cars/sewing/baking/etc. and you become aware of a customer need that is not being served by anyone else in your competitive area.  You decide to open a business that offers a product or service that satisfies this customer need.  You spend the next 6 weeks asking friends, relatives, and others how they want that product or service rendered.C) You have some knowledge about cars/sewing/baking/etc. and you will spend the next 6 weeks asking friends, relatives, and others what product or service they need and want.D) You have several years experience employed as a painter/landscaper/retail clerk/etc. and you will open a business offering the same product or service.

6. Ten traits shared by winners •   1. An eye for opportunity: Many entrepreneurs start by finding a need and quickly satisfying it.  2. Independence: Even though most entrepreneurs know how to work within the framework for the sake of profits, they enjoy being their own boss  -- i.e. making all the decisions and dealing with all the problems.  3. An appetite for hard work: Most entrepreneurs start out working long, hard hours with little pay.  4. Self-confidence: Entrepreneurs must demonstrate extreme self-confidence in order to cope with all the risks of operating their own business.  5. Discipline: Successful entrepreneurs resist the temptation to do what is unimportant or the easiest but have the ability to think through to what is the most essential and do it.  6. Judgment: Successful entrepreneurs have the ability to think quickly and make a wise decision.  7. Ability to accept change: Change occurs frequently when you own your own business, the entrepreneur thrives on changes and their businesses grow.  8. Make stress work for them: On the roller coaster to business success the entrepreneur often copes by focusing on the end result and not the process of getting there.  9. Need to achieve: Although they keep an "eye" on profits, this is often secondary to the drive toward personal success.  10. Focus on profits: Successful entrepreneurs always have the profit margin in sight and know that their business success is measured by profits.

7. Top ten ….or 12 12 leading management mistakes that lead to business failures.1) Going into business for the wrong reasons2) Advice from family and friends3) Being in the wrong place that the wrong time4) Entrepreneur gets worn-out and/or underestimated the time requirements5) Family pressure on time and money commitments6) Pride7) Lack of market awareness8) The entrepreneur falls in love with the product/business9) Lack of financial responsibility and awareness10) Lack of a clear focus11) Too much money12) Optimistic/Realistic/Pessimistic

8. Top ten … the following items should assist in the improvement of chances for success.1) Development of a business plan2) Obtaining accurate financial information about the business in a timely manner3) Profile of target customer4) Profile of competition5) Go into business for the right reasons6) Don’t borrow family money and don’t ask the family for advice7) Network with other business owners in similar industries8) Don’t forget, someone will always have a lower price than you9) Realize that consumer tastes and preference change10) Become better informed of the resources that are available

9. Reasons to stay at home? • You're hardly the first    Problem: Lots of people are already running businesses doing what you planned on doing.    • Too late?    Problem: You are too late to market    • Flat industry    Problem: Your research tells you the industry is flat.     • Prohibitive costs    Problem: Set-up costs are too high.    • Lack ofinformation      Problem: You can't find information about the industry to determine if your idea is viable.   

10. Another quote • “The success or failure of any firm depends upon competitive advantage - delivering the product at lower cost or offering unique benefits to the buyer that justifies a premium price”- opening line from the inside front cover of Competitive Advantage by Michael E. Porter - Harvard

11. Business on a page :) Know your customers Differentiate your value proposition Generate customer desire for your product Implement

12. Find out what customer’s value and give it to them …

13. Meaning of Value • Customers' personal and business values. Understanding what the customer values is key so that your offer is aligned. • Customer actions are more dependable than their statements. e.g. price not important … • The second definition of value is estimated worth. Providing an offer to customers that creates value in their eyes is critical.

14. Some quotes • “True competitive advantage exists in the mind of the customer who believes the value they will receive is greater than the price they will pay for a product or service” - Jim McCraigh, guest lecturer at the University of California and John F. Kennedy University

15. Value Proposition ‘The value proposition is defined as an implicit promise a company makes to its customers to deliver a particular combination of values’.

16. What do customers value? • A value proposition consists of everything that customers may evaluate before deciding to buy something” - Nickels, McHugh et al, Understanding Canadian Business

17. Value Proposition • The value proposition concept is a valuable tool to utilize with each important constituency • Proposition should evolve. It is dynamic. • Look both internally and externally to define a statement that is actionable by your company, while being credible and compelling to your target audience

18. Value package components • product, price, package • speed of delivery, accessibility of seller • store surroundings (atmospherics) • image created by advertising • guarantee, brand name, • service, buyer’s past experience, reputation of the producer (Nickels et al)

19. What is a competitive advantage? • Knowing which benefit(s) the customer values the most and delivering that/those benefit(s) better than your competitors • Let’s do some examples .. • Take some example ideas • Outline segment • Outline what segment might value • Brainstorm as to which of the ideas attributes would appeal

20. Wireless LCD television • Television furniture • Bicycle rental on NB waterfront • Pet day care • Corporate concierge • Some ideas …

21. Sustaining competitive advantage • The activities that management must undertake can vary widely, but they must be oriented to improving an attribute that a customer values

22. Summary • Competitive advantage is a simple concept that is at the heart of every business transaction and as a consequence at the heart of every business, • Competitive advantage exists in the mind of the customer • The customer reveals their assessment of your competitive advantage at time of purchase

23. Creativity

24. Creativity • The process of creating products, ideas, or procedures that are novel or original, and are potentially relevant or useful to an organization.

25. Verification Insight Incubation Creative Process Model Preparation

26. Characteristics of Creative People • Above average intelligence • Persistence • Relevant knowledge and experience • Inventive thinking style

27. De Bono’s Six Thinking Hats • White hat • Impartial thinking, focusing strictly on the facts. • Red hat • Expression of feelings, passions, intuitions, emotions. • Black hat • A critical, deliberate, evaluating outlook.

28. De Bono’s Six Thinking Hats • Yellow hat • An optimistic, upbeat, positive outlook. • Green hat • Creativity, inspiration, imagination, and the free flow of new concepts. • Blue hat • Control, an overall “managerial” perspective of the process.

29. Redefinethe Problem Cross-Pollination • Review abandoned projects • • Explore issue with other people • • Diverse teams • • Information sessions • Internal tradeshows Creative Activities

30. Creativity Blocks • Expected evaluation • Surveillance • External motivators • Competition • Constrained choice

31. Organizational Barriers to Creativity • Internal political problems • Harsh criticism of new ideas • Destructive internal competition • Avoidance of risk • Rigid rules and regulations regarding style • Other?

32. Innovation Strategies and Performance in Small Firms – John Baldwin and Guy Gellatly Summary prepared by G. Brophey Jan16/06

33. Layout of Summary • Data sources • Broad findings • Innovation and SME Growth • Lessons learned • Things to avoid

34. Data sources • Surveys of firms with less than 500 employees Populations surveyed -Long-run survivors >10 years old -growing SMEs, both goods and services -small manufacturing firms -innovative service firms in communication, business services and finance -corporate business bankruptcies

35. Broad findings • 63.1% fail in first five years • Size matters – failures are generally smaller and younger • Innovation types and methods are context- specific • Innovators are more proactive • Innovation is key to both survival and growth

36. Innovation and SME Success –Defined as Growth in Market Share

37. SME Financing Typical breakdown -38% Retained earnings -8% share capital -18% LTD -16% Short term debt -Remainder trade and other (20%)

38. Lessons learned-across Canadian SMEs • Proactivity leads to innovation • More innovation leads to faster growth • Comprehensive innovators (product and process) are most profitable • Process innovators are next most profitable • Product innovators are next most profitable

39. Things to avoid From bankruptcy stats -Managers of bankrupt firms lack experience and ability in key areas of general management, finance and marketing Key tipping points a) Marketing- unable to establish niche, poor pricing practices b) Finance – undercapitalization and poor management of working capital c) Personal problems for owner

40. 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.

41. To sum up • Go big or stay home • Arranging too many dollars in support is much better than not enough • Build an innovation culture • If you haven’t got experience, partner with someone who does • Keep your strategy aligned with your operations (general management) and watch your dollars consistently

42. Strategic Management

43. Is Strategic Planning Really That Important? • Study of 500 small companies: • One of the most significant factors in distinguishing growing companies from those in decline: use of a written business plan. • Another study: • Only 12% of small companies had a long-range plan in writing.

44. Strategic Management and Competitive Edge • Developing a strategic plan is crucial to creating a competitive advantage, the aggregation of factors that sets a company apart from its competitors and gives it a unique position in the market.

45. 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”).

46. Competitive Advantage … the basics • Buyers can choose what product (goods and services) they buy. • A competitive advantage are attributes of the product that a certain set of buyers perceive to have value sufficient that they choose that product over others that compete for their business.

47. 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.

48. Strategic Management Process ... (continued) Step 5: Analyze competition. Step 6: Create goals & objectives. Step 7: Formulate strategies. Step 8: Translate plans into actions. Step 9: Establish accurate controls.

49. Step 1: Develop a Vision and Create a Mission Statement • Vision – an expression of what an entrepreneur stands for and believes in. • Vision is based on an entrepreneur’s values. • A clearly defined vision must be worthy and compelling for stakeholders

50. Step 1: Develop a Vision and Create a Mission Statement • Mission - addresses question:"What business are we in?” • A written expression of how the company will reflect the owner’s values, beliefs, and vision. • Sets the tone for the entire company and guides the decisions people make.