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Entrepreneurship (in brief)
Entrepreneurship at ESADE University in Spain
Terms in this set (57)
A person that takes initiative to bundle resources in innovative ways and is willing to bare the risk of uncertainty.
The Entrepreneurial Process
Weigh Risk vs. Rewards
The Business Plan
How Entrepreneurs Should Think
Be cognitively adaptable.
Learn from failure.
Role of Entrepreneurship in Economic Development
Innovation is depicted as a key to economic development.
Product-evolution process: Process through which innovation is developed and commercialized.
Iterative synthesis: The intersection of knowledge and social need that starts the product development process.
Offering a new product for an established or new market
Offering an established product to an old market
Creating a new organization
Resources as a Source of Competitive Advantage
Resources must be:
Unique Experiences and Knowledge
Assessing the Attractiveness of a New Entry Opportunity
Depends on the level of information and the willingness to make a decision without perfect information.
The viability of a new entry can be described in terms of a window of opportunity.
Error of Commission
Error of Ommission
Negative outcome from acting on the perceived opportunity.
Negative outcome from not acting on the new entry opportunity.
Entry Strategy: First-Mover Advantages and (Dis)Advantages
Secure suppliers and distributers,
Position to satisfy Customers is better
Expertise through participation
Must learn success factors
Common Environmental changes
First Mover Tradeoffs
-Building customer loyalties.
-Building switching costs.
-Protecting product uniqueness.
-Securing access to important sources of supply and distribution.
Risk Reduction Strategies
Market Scope Strategy
-Narrow-scope strategy: small product range to a small number of customer groups to satisfy a particular need
---->High-end of the market represents a highly profitable niche.
---->LEads to specialization
-Broad Scope Strategy: a range of products across many different market segments
----Reduces risks with market uncertainties but increases exposure to competition.
--reduce customer uncertainty and R&D
Problems with newness
Costs of Learning
Facilitate formal work and casual non work bonding
Bonus: forced to learn a lot first hand
Try to catch a new trend that will be in existence for a long time
Sources of New Ideas
Existing Products or Services
Product Planning and Development Process
Product Development Stage
Test Marketing Stage
What is the Business Plan?
A document describing relevant internal and external elements, and strategies for starting a new venture.
Addresses short term an long term decision that will be made in the first 3 years.
Why is the Business plan valuable
Helps evaluate the viability of the venture.
Helps organize ones thoughts and plans for the organization.
Help obtain financing.
Must be completed before the business plan
sets feasible goals, marketing strategy, financing, and production
Gather information using upside-down pyramid
general enviromental and demographic trends
national trends in the industry
local environmental and demographic trends
local trends for the industry
Why some business plans fail
Goals are unreasonable
Objectives are not measurable
Lack of experience in the planned business
No sense of potential threats or weaknesses
to the business.
No customer need was established
Business Canvas Exercise
Choosing a Partner
Should have omplementry skills
What resources do they bring:
human: skills and knowledge
Issues with adding members
-overlap of roles
-lack of accountability
3r's for building a team
-friends vs. strangers
-intangible vs. tangible
--splitting the pie based on contributions, expected future contributions and opporitunity costs
-power structure and devision of labor based of skill and other criteria
Asset Based requires collateral
Repay initial plus interest
Funds in exchange for ownership
Factors affecting type of financing
- Availability of funds.
- Assets of the venture.
- Prevailing interest rates.
All financing requires some equity. Amount depends on size and nature of venture
Internal or External Funds
-Length of time assets are availible
-cost of assets
Types of Personal Funds
reflects level of commitment
If Family and Friends are used...
Terms, conditions, and expectations must be set.
It can be easier to get money here but they will then have a vested interest in your project.
Banks use qualitative and quantitative data.
Past financial statements and pro forma are needed.
And they need believe the money will be paid back.
Three types of funding:
Early stage financing
Risk Capital Markets
Debt and equity for nonsecure financing situations
Types of risk capital markets:
-Informal risk capital market
--Can't have a relationship with a business angel(distinguishing factor)
--Only for high potential companies
Nature of Venture Capital
-long term, generally over about 5 years
-used in early stages, to revitalize or start a new growth plan, to buyout other ventures
-requires the venture capitalist to take equity participation
-they makes money off the capital and debt
criteria for venture capitalist
-strong management team
-must show strong potential for capital appreciation
4 Stages of venture Capital Process
Agreement on principal terms
Advantages and Disadvantages of Going Public
enhanced ability to raise capital
Increased risk of Liability
Loss of Control
Pressure to maintain level of growth
Industry Analysis and Competitor Analysis
-knowledge of the environment that can affect marketing strategy
-Document current strategies of primary competitors
-Use to decide positioning
Step One: Defining the Purpose or Objectives
Step Two: Gathering Data from Secondary Sources
Step Three: Gathering Information from Primary Sources
Step Four: Analyzing and Interpreting the Results
A written statement of marketing objectives, strategies, and activities to be followed in business plan
Answers 3 questions
-Where have we been?
-Where do we want to go (in the short term)?
-How do we get there?
The Marketing Mix
4 P's and other marketing activities needed to meet marketing objectives
Considerations for Placement
Directness of delivery to the consumer
How many different methods
How many different members of a particular method
Criteria for selecting channel members: rep and services
Different Growth Strategies
Penetration: Existing Product/Existing Market
Market Development: Existing Product/New Market (1 possiblity: perhaps a new use was discovered so new people can use it)
Product Development: New Product/Existing Market (distribution systems already established and thus costs are lower)
Diversification: New Product/New Market
-Backward integration (closer to raw materials)
Implications of growth
Resources stretched thin: both financial and human(employee moral/turnover and workload)
Management of employees can be affected (change in style may be needed)
Entrepreneurs time stretched further over more things that require his/her attention causing problem
Overcoming growth pressures on finances
-expensive to raise new fund
-to minimize need for new funds more carefully manage old funds
--Cash Flow, inventory, fixed assets, costs and profits, taxes, record keeping
Overcoming growth pressures on Human Resource
-Decisions regarding the proportion of permanent employees to part time
-Constant feedback to employees with proposed solutions
-A more participative style of management
-Maintain Corporate Culture despite influx of new employees
Using External Parties to Help Grow a Business
-Defensive Reasons vs Offensive Reasons
--Survivial Requirment (loss of raw materials
--Protection Against (market infringement)
--Gains in (Market Position)
Pay-off Rapid Growth
Can't growth too fast or it will hurt the venture
§ Broadening beyond natural market segments
§ Prematurely targeting mainstream customers
§ Rising CAC (customer acquisition cost)
§ Price and promotion battles
§ Scalability constraints
Reasons to grow fast
Increase production to allows lower costs to increase demand
Switching Costs: Aquire customers fast when the switching cost is high
Crossing the Chasm
Early adopter may not be the market you want to hit. Isolate the group you've decided you now want to target with a concentrated marketing mix.
Considerations for entering a different country
All this contributes to the level of psychological Distance
Physical Distant Versus Psychological Distance
Sometimes ones perception of psychological distance is misleading. Thorough research should be done before entering.
§ Fundamental infrastructures.
§ Banking facilities and systems.
§ Educational systems.
§ Legal system.
§ Business ethics and norms.
§ Operating risk.
§ Transfer risk.
§ Ownership risk .
§ Conflict and changes in the solvency of the country.
Economics and Economic Philosophy
Manners and Customs
Foreign Market Selection: Five Step Approach
§ Develop appropriate indicators.
§ Collect data and convert into comparable
§ Establish an appropriate weight for each indicator.
§ Analyze the data.
§ Select the appropriate market from the market rankings.
Methods for Global Entry
Direct Foreign investment
-Minority or Majority Interests
-Different Kind of Mergers
Find a foreign entrepreneur with whom to partner
Barriers to International Trade
-GATT (general agreement on tariffs and trade
-Trade Blocs and Free Trade Areas
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