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CREATING BUSINESS FROM OPPORTUNITY

CREATING BUSINESS FROM OPPORTUNITY. UNIT 1• ENTREPRENEURIAL PATHWAYS. Class Name Instructor Name Date, Semester. Performance Objectives After this lecture, you should be able to complete the following Performance Objectives.

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CREATING BUSINESS FROM OPPORTUNITY

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  1. CREATING BUSINESS FROM OPPORTUNITY • UNIT 1• ENTREPRENEURIAL PATHWAYS Class Name Instructor Name Date, Semester

  2. Performance Objectives After this lecture, you should be able to complete the following Performance Objectives 1. Define your business.2. Articulate your core beliefs, mission, and vision.3. Analyze your competitive advantage.4. Perform viability testing using the economics of one unit.5. Understand how to value a business.

  3. 3 Apple and Personal Computer Market-a group of people or organizations that may be interested in buying a given product or service, has the resources to purchase it, and is permitted by law and regulation to do so.

  4. 3 The Business Definition Target market—who will it serve? The offer—what will the business offer the customers? Production and delivery capability—how will it provide the products & services it sells?

  5. 3 Types of Business • Manufacturing—makes tangible products & sells them through distributors or directly • Wholesale—buys in bulk from manufacturers & sells smaller quantities to retailers • Retail—sells individual items to consumers • Service—sells time/expertise to consumers

  6. 3 Defining an Organization Core Values Mission Vision Culture

  7. 3 Organizational Core Beliefs Beliefs entrepreneurs use to guide organizations. Example: My restaurant will support local organic farmers. Core beliefs affect: • materials used in production • prices charged • how customers are treated

  8. 3 Mission Statement A concise statement of • Target customers • Products & services • Markets served • Use of technology • Importance of public issues & employees • Focus on survival, profitability & growth

  9. 3 Vision Overall view of desired company future state Built upon core values & beliefs Compelling across the organization Employees need to be empowered to fulfill it

  10. 3 Culture Largely shaped by leadership Core values in action Includes • Risk tolerance & innovation • Orientation with respect to people, teams & outcomes • Attention to detail • Communication norms

  11. The Decision Process: Routes to Finding Opportunities 3 Self- or group-developed business ideas Research on “hot” business ideas or growth areas Product or service idea first & search for a market or business second

  12. 3 Competitive Advantage Competitive advantage – whatever you can do better than the competition that will attract a sufficient number of customers to your business so it can succeed. - Must be sustainable in order to create long-term viability. - Your competition is defined by your target market and can be direct (selling the same or similar products to the same market). - or indirect (selling different products that compete for the same share of customer spending).

  13. 3 Competitive Advantage Determine What consumers Need and Want. Having a Unique Knowledge of Your Market

  14. 3 Six Factors of Competitive Advantage • Quality • Price • Location • Selection • Service • Speed/turnaround

  15. 3 Is Your Competitive Advantage Strong Enough? Sell to a market that is large and growing. Sell to a market where the competition is able to make a profit. Sell to a market where the competition is succeeding but is not so powerful as to make it impossible for a new entrepreneur to enter. Sell a product or service that solves problems consumers may have with the competition. (barriers to entry –the factors that contribute to the ease or difficulty of a new competitor joining an established market. Sell a product or service at a competitive price that will attract costumers.

  16. 3 Checking Out the Competition Competitive offers –How does your offer compare with those of your leading competitors? Unique Selling Proposition (USP)- the unique feature and benefit that sets a company apart from its competition? Cost Structure-what is different about your business activities and the cost of doing business, compared to the competition?

  17. Competitive Strategy: Business Definition and Competitive Advantage 3 Competitive strategy Strategy Tactics

  18. Feasibility Revisited: The Economics of One Unit as a Litmus Test 3 Gross profit-total sales revenue minus total cost of goods sold. Economies of one unit of sale-the amount of gross profit that is earned on each unit of a product or service a business sells. Unit of sale-the basic unit of a product or service sold by the business.

  19. 3 Define the Unit of Sale Manufacturing—one order Wholesale—a dozen of an item Retail—one item Service—one hour of service time.

  20. 3 Average Sale Per Customer Average sale per customer – average cost of sale per customer Average gross profit per customer

  21. 3 Cost of Goods Sold & Gross Profit Cost of Good Sold (COGS)- the cost of selling one additional unit of a tangible product. - cost of materials used to make the product (or deliver the service), and - cost of labor directly used to make the product (or deliver the service). Cost of Services Sold (COSS)-the cost of selling one additional unit of an intangible service.

  22. Unit of Sale as a Combination of Different Items 3

  23. 3 Economics of One Unit (EOU) Method for seeing if a business can be profitable If one unit of sale is not profitable, then know matter how many units you sell, the business will never be successful. Direct labor-the wages of employees that can be figured into the cost of a product or service.

  24. Economics of One Unit (EOU) —Manufacturing 3

  25. Economics of One Unit (EOU) —Wholesale 3

  26. Economics of One Unit (EOU) —Retail Business 3

  27. Economics of One Unit (EOU) —Service Business 3

  28. Economics of One Unit (EOU) —Example 3

  29. Five Breakthrough Steps Entrepreneur’s Can Take: 3 • Calculating the unit of sale. • Determining the economics of one unit of sale. • Substituting someone else’s labor. • Selling in volume. • Creating jobs and operating at a profit. Result: The entrepreneur creates jobs and wealth.

  30. 3 • Currency-a term for money when it is exchanged internationally. • Foreign exchange (FX) rate-the relative value of one currency to another.

  31. 3 Determining the Value of a Business • Asset valuation-a method that analyzes the underlying value of a business’s assets as a basis for negotiating a price. - Book value - Adjusted book value - Liquidation value - Replacement value • Earnings valuation-a method that asses the value of a business based upon a stream of earnings that is multiplied either by an agreed-upon factor (the capitalization factor) or by the price/earnings ratio (for a publicly traded company). - Historical earnings - Future earnings under current ownership - Future earnings under new ownership • Cash flow valuation- a method of calculating the worth of a business by using projected future cash flows and the time value of money

  32. Key Terms asset valuation barriers to entry cash flow valuation competitive strategy core values cost of goods sold (COGS) cost of services sold (COSS) currency direct labor earnings valuation economics of one unit of sale (EOU) foreign exchange (FX) rate manufacturing market retail service strategy tactics unique selling proposition (USP) unit of sale wholesale

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