Mgmt 310 Exam 2 (Kiss)
Terms in this set (67)
Business models and their importance
a firms business model is its plan or diagram for how it competes, uses its resources, structures its relationships, customers, and creates value to sustain its profits. (all the activities that define how a firm competes)
Standard business model
Used commonly by many existing firms.
Advertising (google, facebook, youtube)
Brick and Click (apple, barnes & noble)
Peer to peer (air bnb)
Disruptive business model
Rare, change the way in which business is conducted in an industry.
New market disruption (advertise in a new way)
Low end disruption (inferior service for cheaper)
exp: Dell's produce when ordered
The first component of a business model is the core strategy, which describes how a firm competes relative to its competitors
Mission statement, target market, scope
A firm is not able to implement a strategy without resources, so the resources a firm has affect its business model substantially.
a firms core competencies and strategic assets
This is the only section of a firm's business model that describes how it earns money, making it important.
For most businesses the manner in which it makes money is one of the most fundamental aspects of its business model.
Revenue stream- one way it makes money (apple has many streams- phones, computers, tablets)
Cost structure- describes the most important costs incurred to support the business model.
Funding- need it to bring the model to life
are both integral to a firms overall business model and represent the day to day heartbeat of a firm.
Product- make product in house or outsource
Channels- how it delivers its product to customers: direct, intermediaries, or a combo of both. (sometimes you hire a sales force)
Key Partners- suppliers for R&D, manufacturing, distribution
Potential fatal flaws in a business model
Complete misread or the customer
Utterly unsound economics
how business models emerge
because new or existing companies are able to spot areas in existing firms' value chain of activities that can be performed better or completely eliminated.
Establishing a strong ethical culture
Lead by example: make ethics part of daily conversation, emphasize integrity, encourage ethics
Code of conduct: formal statement of an organizations values on ethics and social issues
Training program: teach business ethics to help employees deal with ethical dilemmas and improve their overall ethical conduct.
Choosing and attorney
Select an attorney early: make sure they are familiar with start ups
needs a good track record
knows about patents, trademarks, ect
make sure they understand your business
Drafting a founders agreement (shareholders agreement)
Written document with the nature of the business, titles of the founders, legal from of ownership, apportionment of stock, and more
Avoiding illegal disputes
mostly happen from misunderstandings, sloppiness, lack of law knowledge.
Meet all contractual obligations. Avoid undercapitalization. Get everything in writing. Set Standards.
Obtaining business licenses and permits
Need the right to licenses and permits wherever you are starting a business.
needs a license to operate in most communities.
if the business will be run out of a home, they need a home occupation license
need a state license if you are going to have employees
need a federal license if manufacturing drugs, investment advising, and interstate trucking
Depends on the nature and location of the business.
Selling food: health permit
Open to public: fire permit
Fictitious name: Fictitious name permit
Form of business ownership
A form of legal entity must be chosen
Simplest form of business entity. Form of business involving one person. Responsible for all liabilities of the business
(easy & cheap, complete control, no double taxation, liquidity: easy to dissolve)
If two or more people start a business, they must organize as a partnership, corporation, or limited liability company
all partners are liable for all the partnership debts and obligations
partners are only liable up to the amount of their investment
is a separate legal entity organized under the authority of a state.
separate legal entity, that in the eyes of the law, is separate from its owners.
Combines advantages of a partnership and c corporation. Similar to a partnership in that the income of the business in not double taxation. Similar to corporation in that the owners are not subject to personal liability for the debts and behavior of the business.
Limited liability company
business ownership that is rapidly gaining popularity in the US. Combines the limited advantage of a corporation with the tax advantages of a partnership. DOES NOT PAY TAXES
Importance of intellectual property
Is any product of human intellect that is intangible but has value in the marketplace. It is called intellectual because it is from human imagination/creativeness.
Importance: physical assets, intellectual assets can both help the avoid unintentional violations.
Determining What Intellectual Property to Protect
Criteria 1: does the property directly related to the firm's competitive advantage
2: does it have value in the marketplace
4 key forms of intellectual property
Patents, trademarks, copyrights, trade secrets
rights to exclude others from making, selling, or using an invention for the term of the patent. Anyone can file for a patent
Basic req. for getting a patent: useful, novel, not obvious
Utility patent(95%): new machine
Design(5%): new ornamental design
Plant (1%): reproduction of plants assexually
Takes place when one party engages in the unauthorized use of another party's patent.
Costly to litigate
any word name symbol or device used to identify
Service Mark- intangible activities rather than physical products
Collective Mark- trademarks or service marks used but the corp members
Certification marks- Used to certify a particular quality
What is protected by a trademark
Words, number and letters, logos, sounds, fragrances, shapes, colors, trade dress.
Exclusions: profane words, deceptive matter, descriptive marks, surnames
Obtaining a trademark
select the mark, trademark search, create rights in the trademark.
Should be creative and strong.
A copyright is a form of intellectual property protection that grants the owner of a work authorship the legal right to determine how the work is used.
What is protected?: Literary works, musical compositions, computer software, dramatic works, pantomimes and choreographic, sculture/graphics.
Exclusions: CANNOT PROTECT IDEAS
Obtaining a copyright
any work of authorship the moment it assumes a tangible form.
Copyright Infringement: occurs when one work derives from another or is an exact copy or shows substantial similarity to the original work. (illegal downloading and streaming)
is any formula pattern, physical device, idea, process, or other information that provides the owner of the information with a competitive advantage.
info that is known by the public or competitors cannot qualify. Protected through written documents.
Intellectual propety audit
First step a firm should take to protect its intellectual property. Determines the intellectual property a firm owns.
Reason 1: prudent for a company to periodically determine whether its intellectual property is being protected
3: prepared to justify its valuation in a merger
deals with 2 things, raising money and managing a company's finances in a way that achieves the highest rate of return
is the ability to earn a profit
Many start-ups are not profitable during their first one to three years while they are training employees and building their brands
Is a company's ability to meet its short-term financial obligations.
Even if a firm is profitable, it is often a challenge to keep enough money in the bank to meet its routine obligations in a timely manner: (firms need to watch their inventories and their accounts receivable i.e. money from customers)
is how productively a firm utilizes its assets relative to its revenue and its profits.
is the strength and vigor of the firms overall financial posture.
For a firm to be stable, it must not only earn a profit and remain liquid but also keep its debt in check (when the debt-to-equity ratio is too high the firm may have trouble meeting its obligations and securing additional funding)
The Process of Financial Management
Financial statements- to asses whether its objectives are being met.
Forecasts- estimate the income and expenses
Budgets- itemized forecasts
Ratios- Depict relationships between items on the financial statement
IMPORTANCE: Many experienced entrepreneurs stress the importance of keeping on top of the financial management of the firm.
Historical Financial Statements
Reflect past performance and are usually prepared on a quarterly and annual basis.
Pro forma financial statements
Are projections for future periods based on forecasts and are typically completed for two to three years in the future.
Reflects the results of the operations of a firm over a specified period of time. It records all the revenues and expenses for the given period and shows whether the firm is making a profit or is experiencing a loss.
Is a snapshot of a company's assets, liabilities, and owner's equity at a specific point in time.
Statement of cash flows
Summarizes the changes in a firm's cash position for a specified period of time and details why the changes occurred.
The most practical way to interpret or make sense of a firm's historical financial statements is through ratio analysis, as shown in the next slide.
Comparing a Firm's Financial Results to Industry Norms
Comparing a firm's financial results to industry norms helps a firm determine how it stacks up against its competitors and if there are any financial "red flags" requiring attention
Pro Forma Income Statement
Shows the projected results of the operations of a firm over a specific period.
Pro Forma Balance Sheet
Shows a projected snapshot of a company's assets, liabilities, and owner's equity at a specific point in time.
Pro Forma Statement of Cash flows
Shows the projected flow of cash into and out of a company for a specific period.
The same financial ratios used to evaluate a firm's historical financial statements should be used to evaluate the pro forma financial statements.
A sales forecast is a projection of a firm's sales for a specified period (such as a year).
A sales forecast for a new firm is based on a good-faith estimate of sales and on industry averages or the experiences of similar start-ups.
importance of getting financing or funding
Few people deal with the process of raising investment capital until they need to raise capital for their own firm.
Why most new ventures need funding
Cash flow challenges: inventory must be purchased, employees trained, advertising all must be paid
Capital Investments: The cost of buying real estate, building facilities, and equipment typically exceeds a firms ability to provide funds for these needs.
Lengthy Product Development Cycles: Some products are under development for years before they create profit. Up front costs are expensive.
Personal Financing Sources
Personal Funds: The majority of founders contribute personal funds, sweat equity to their ventures.
Friends and Family
Bootstrapping: finding ways to avoid the need for external financing or funding through creativity, ingenuity, thriftiness, cost cutting, or any means necessary. (buy used not new)
Preparing to raise debt or equity financing
Determine how much money is needed, determine the type of funding thats appropriate, develop a strategy for engaging potential investors or bankers.
Common alternatives: Equity funding (exchanging partial ownership in the form of stock for funds) and debt financing (loan)
Sources of equity funding
Venture Capital: Is money that is invested by venture capital firms in start ups with exceptional growth potential. Venture capital firms fund few entrepreneurial firms in comparison to Angels. (Due Diligence process)
Business Angels: Individuals who invest their personal capital directly in start-ups. (50 years old has high income, educated) Willing to make small investments (between $10k-$500k) (hard to find)
Initial public offerings: a company's first sale of stock to the public. Its stock is traded on one of the major stock exchanges.
Reasons to go public
Its a way to raise equity capital to fund operations.
Raises their public profile, making it easier to attract customers/business partners.
Liquidity event that provides a means for a company's investors to recoup investments
Creates a form of currency that can be used to grow the company via acquisitions.
getting a loan. Advantages: ownership not surrendered and tax deductible. Disadvantages: must be repaid and strict protection conditions.
Sources of debt financing
Banks: Not viewed as a practical source of financing. Too risky for banks to invest in startups.
SBA (small business admin): Guaranteed loan program. 50% of banks participate. Operates through private sector lenders who provide loans for small businesses. All businesses can apply.
Vendor credit: trade credit, is when vendors extends credit to a business in order for them to buy products.
Factoring: business sells its accounts receivable to a third party at a discounted price.
Peer to peer: financing between individuals
Crowdfunding: pooling money to support initiative.
a written agreement in which the owner of a piece of property allows an individual or business to use the property for a specified period of time for payments
The Small Business Innovation Research (SBIR) and the Small Business Technology Transfer (STTR) programs are two important sources of early-stage funding for technology firms.
These programs provide cash grants to entrepreneurs who are working on projects in specific areas.
private: limited number
Many partnerships are formed to share the costs of product or service development, to gain access to particular resources, or to facilitate speed to market