Entrepreneurship and Small Business Management

1. Entrepreneurship and Small Business Management Chapter 5 Creating Business from Opportunity

2. Ch. 5 Performance Objectives • Define your business. • Articulate your core beliefs, mission, and vision. • Analyze your competitive advantage. • Perform viability testing using the economics of one unit.

3. The Business Definition • Who will the business serve? (target market) • What will the business sell? (the offer) • How will the business provide the products and/or services it offers? (production and delivery capability)

4. Basic Types of Businesses • Manufacturing—makes a tangible product and sells it through distributors or direct • Wholesale—buys in bulk from manufacturers, and sells smaller quantities to retailers • Retail—sells individual items to consumers • Service—sells an intangible product to consumers or other businesses

5. Defining an Organization • Core Values—the fundamental ethical and moral philosophy and beliefs • Mission—the business intention, and the core strategy for achieving it • Vision—an overall “picture” of what you want the business to become • Culture—the working environment

6. Core Values • Are used to guide decision making in the organization Example: My restaurant believes in supporting local organic farmers. • Affect business policies, such as: • Type of materials used in production • Prices charged • How customers are treated

7. The Mission Statement • Defines the purpose of the business in 40 to 50 words • Provides direction and motivation • Addresses these topics: • Target customers and markets served • Products and/or services provided • Use of technology • Importance of public issues and employees • Focus on survival, profitability, and growth

8. Vision • Broad view of the company’s desired, future state • Built on the company’s core values • Must matter across the organization • Employees need to be empowered to fulfill it

9. Culture • Largely shaped by company’s leaders • The core values in action • Learned by employees through stories, ceremonies, events, and symbols • Impacts behavioral norms such as: • Risk tolerance and innovation • Attitudes toward people, teams, outcomes • Communication—language and methods

10. Routes to Finding Opportunities • Self- or group-developed business ideas through brainstorming • Researching “hot” business ideas or growth areas • Starting with a product or service idea, and then searching for a market

11. Competitive Advantage Factors • Quality: Can you provide higher quality than competing businesses? • Price: Can you offer a lower price on a sustained basis than your competition? • Location: Can you find a more convenient location for customers?

12. Competitive Advantage Factors(continued) • Selection: Can you provide a wider range of choices? • Service: Can you provide better, more personalized customer service? • Speed/Turnaround: Can you deliver your product or service more quickly?

13. Is Your Competitive Advantage Strong Enough? Unique Selling Proposition (USP): What features/benefits set your business apart from its competition? • Compare what your business offers to what competitors offer. • Determine if you have a cost advantage or cost disadvantage.

14. Competitive Analysis

15. Strategy Versus Tactics • Competitive strategy • Your plan for outperforming the competition • Combines business definition with sustainable, competitive advantage • Tactics—ways in which you carry out your strategy

16. Feasibility Analysis Economics of One Unit of Sale (EOU): What is the amount of gross profit earned on each unit of the product or service your business sells? • Define the unit of sale. • Calculate the amount of gross profit per unit. • If one unit of sale is profitable, the whole business is likely to be profitable.

17. Define the Unit of Sale • Manufacturing—one order • Wholesale—multiple of the same item (example: a dozen roses) • Retail—one item • Service—one hour of service time or a standard block of time devoted to a task • Combination—average sale per customer minus average cost of sale per customer (example: restaurant meals)

18. Determine the Average Sale Per Customer • If the business sells differently priced items, use the average sale per customer as the unit of sale. • Average unit of sale = total sales divided by the number of customers

19. Calculate Gross Profit Per Unit Gross profit per unit = selling price per unit minus COGS or COSS per unit • Cost Of Goods Sold: cost of labor and materials required to make one additional unit of a tangible item • Cost Of Services Sold: cost of labor and materials required to provide one additional unit of a service

20. Economics of One Unit —Manufacturing Business

21. Economics of One Unit —Wholesale Business

22. Economics of One Unit — Retail Business

23. Economics of One Unit — Service Business

24. The Entrepreneur’s Strategy: • Start a business with a profitable EOU • Hire others to create the units • Increase volume of units being sold • Start new businesses or expand opportunities Result: The entrepreneur creates jobs and wealth.