Learner Guide - Entrepreneurial Skills PDF

LEARNER GUIDE NATIONAL CERTIFICATE: ARCHITECTURAL TECHNOLOGY ID 48734 -LEVEL 5 – 120 CREDITS ENTREPRENEURIAL SKILLS Learner Information (Please Complete this Section) Name & Surname: Organisation/Venue: Workplace Unit/Dept: Facilitator Name: ©Copyright© All rights reserved. The copyright of this document and any annexures thereof is protected and expressly reserved. No part of this document may be reproduced, stored in a retrievable system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the prior permission. Learner Guide Information The purpose of this Learner Guide is to provide learners with the necessary knowledge and provide a comprehensive overview relating to the following skills program or unit standard: ENTREPRENEURIAL SKILLS, which has been developed for the qualification: NATIONAL CERTIFICATE: ARCHITECTURAL TECHNOLOGY ID 48734 -LEVEL 5 – 120 CREDITS This Learner Guide is to improve the skills and knowledge of learners, and thus enabling them to effectively and efficiently complete specific tasks. Learners are to attend training workshops/sessions according to SAQA requirements as well as specified by their organization. These workshops/sessions are presented, and conducted by a qualified facilitator. Outcomes The qualifying learner is capable of: Assessment Criteria The assessment process involves collecting and interpreting evidence about the learner’s ability to perform a task, which will be achieved through a combination of formative and summative assessments. In this guide there may be assessments in the form of activities, assignments, tasks or projects, as well as workplace practical tasks. The learner is to perform these tasks and provide required and authentic evidence in their portfolio of evidence. To qualify and receive credits towards the learning programme or unit standard, a registered assessor and moderator will conduct an evaluation and assessment of the learner’s portfolio of evidence and competency. Learner Responsibility The responsibility of learning rest with the learner, so: Be proactive and ask questions, Seek assistance and help from your facilitators, if required. ENTREPRENEURIAL SKILLS Entrepreneurship What is Entrepreneurship? An entrepreneur is someone who owns and runs a small business, who is responsible for the risks and reaps the rewards, and is committed to the growth and development of the business. An entrepreneur is a person who has created his/ her own job rather than taking one from someone else. WHAT TYPE OF PERSON IS AN ENTREPRENEUR? In groups, write down words that you think best describe an entrepreneur. Hint – to help you in answering this question, think of a successful entrepreneur who you might know, and just describe them!! __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ Now, have a look at these characteristics: CONFIDENT Entrepreneurs are: FOCUSED RISK TAKERS ENERGETIC RESPONSIBLE ACHIEVERS DISCIPLINED KNOWLEDGE AND DECISIVE SKILL STAYERS Risk takers: they don’t take foolish risks, but rather look at business opportunities and make a decision after looking at things very carefully. This is what we call a calculated risk. Confident: Being confident means that you believe in yourself no matter what, especially in the bad times! Responsible: They take responsibility for their own lives, and often for other people’s lives, such as people that they employ. Energetic: They have more energy than the average person. And they need it!!! Especially when starting a business because it means long hours and lots of hard work. Focused: They know where they’re going and how they’re going to get there. Achievers: They want to win and succeed. Disciplined: They work towards their goals and don’t get distracted by other things. Decisive: They get straight to the point and do the business that needs to be done. Knowledgeable and skilled: They have many skills and those they don’t have they find someone who can help them. They always want to learn something new, and are always looking at ways to make their business better. Stayers: They don’t give up easily!! Advantages and disadvantages of entrepreneurship ADVANTAGES How about these for advantages: You can earn a lot of money You don’t have a boss telling you what to do You control your own life and future You cannot be fired or retrenched You create your own wealth You should always remember the drawbacks or negatives. Are you prepared for the things that aren’t all that positive? DISADVANTAGES Like these: Your business could fail You can only succeed if you are 100% committed Hard work and long hours are required Your income may not be regular You have a lot of responsibilities Sometime you may be in debt because of your business Role of entrepreneurship in Architectural Technology Architects often frame their professional identity with almost exclusive respect to the buildings they design. In reality, few architects have ventured far from a common conception of practice in which they provide design services to a client who intends to build. However, the changing nature of society and the issues it confronts should compel more architects to reconsider their expertise and the manner in which it is deployed. Given the current economic distress, environmental strain, and geopolitical unrest, there is growing pressure on societies to find creative solutions to vast, complex, and acute issues that transcend the design of the built environment itself. Clearly, the built environment and those that shape it are critically important, but it isn’t the only venue for architects and designers to make meaningful contributions to society. One key to exploring enhanced productivity for architects may reside in the profession’s self-conception and its relationship to entrepreneurship. Entrepreneurship While the definition of entrepreneurship is nearly as fungible as architecture, a couple views appear to have a higher degree of traction. One defines entrepreneurship as “a process by which individuals…pursue opportunities without regard to the resources they currently control.” Another view frames it as the process of creating value by bringing together a unique combination of resources to exploit an opportunity. First, it’s evident that even the most conventional form of architectural practice in essence represents “the pursuit of opportunities without regard to the resources controlled.” Likewise, architects are—or certainly should be— entirely capable of creating value as they bring together unique combinations of resources through a building opportunity. By definition, therefore, architecture is a form of entrepreneurship, if not an entrepreneurial endeavor entirely. This argument however, seeks more than a cooption of terminology. Simply because one can draw connections from entrepreneurship (defined) to architecture (in practice) doesn’t mean architects are necessarily prepared for significant shifts in their business models. To draw a more meaningful relationship and test the architectural profession’s preparedness to embrace entrepreneurship, one must explore the characteristics and competencies that are fundamental to entrepreneurial activity. Characteristics of a successful entrepreneur While many professions may argue these characteristics reflect important attributes for success, the same is no less true in architecture. Architects are commonly charged with employing creativity in proposing solutions for complex problems, requiring them to adapt as project parameters shift around them. This often takes a significant level of critical thought and attention to issues at multiple scales. Furthermore, it is difficult to find success without a level of initiative in the face of uncertainty and confidence in confronting obstacles. In addition, consider the following activities that comprise an entrepreneurial process: recognizing opportunity, generating ideas, testing feasibility, developing an effective business model/plan, analyzing the industry, competition, and financial viability, assembling a team and obtaining funding. On one level, it could be argued that navigating this process is precisely where architects fall short in entrepreneurial capacity, and that me be true to a degree. But a review of these activities bears striking resemblance to the design process itself. Architects, if nothing else, should certainly be capable of exploring opportunities, analyzing ideas, testing feasibility, developing a plan for implementation, and pitching a proposal to a team and potential financial supporters. Here are some characteristics of a successful entrepreneur 1. Ability to identify opportunities; 2. Ability to make informed decisions; 3. Ability to manage risk, 4. Time management skills Here are some characteristics of a successful entrepreneur 1. ABILITY TO IDENTIFY OPPORTUNITIES; Chances of discovering a need Necessity. The cliché is right. Necessity really is the mother of invention. It is amazing how when you are out of work and the bills are coming due you suddenly find opportunities. The same thing is true when you have a pressing personal need. (You suffer a major illness and need a special diet and yet you can’t find anything on the supermarket shelves that you can eat that comes even remotely close to tasting good. And so you start creating meals for yourself, and others like you, and all of a sudden you have a thriving company. Pay attention. That sage, Lawrence Peter (Yogi) Berra, understood this perfectly when he said “You can observe a lot just by watching." Opportunities are literally everywhere you look. You look out the window and see more and more examples of extreme weather, what kind of opportunities does that create? You walk down the street in one of our big cities and literally see proof we are on our way to becoming a minority majority country. Is there something you can do with that fact? Bring back the suggestion box. Some of you are going to be too young to actually know what a suggestion box is, so let me explain. Employees (and customers) would write down on a small piece of paper ideas they had for improving the business they were dealing with and would place those ideas in a box that was in a prominent position within the store. The suggestion box was a wonderful idea (and one that could operate virtually today.) Think. It is amazing how many opportunities you can find, if you just give yourself some time to think. No negative Nellies. If you want your staff to come up with as many good ideas as possible, you need to support them. You don’t have to accept what they come up with—it is your company after all—but you can’t dismiss anything they suggest as “stupid” or “ill-conceived.” The moment you do; you will never get a good idea again. Study your competition. See what opportunities they are missing that you can take advantage of. And don’t forget to figure out what they are doing right, so you can improve upon it. 2. ABILITY TO MAKE INFORMED DECISIONS; Steps to faster, more informed decisions Focus on the outcome. Being clear about the end point does two things: Provides guidance for your intuition, enabling you to sift through all the available information to select what’s important for the decision you need to make Gives you a solid anchor for your decisions that can accommodate opposing facts and perspectives If, for example, the end point is to stay under budget, then your decision and the data you use to inform your decision will be filtered based on that. If the end point is to produce a product that meets customers’ unstated needs, then all the available information will be filtered using that criterion. The outcome anchors your decision making. Stop mentally concentrating on the issues and let your subconscious do the work for you. Your subconscious is faster than your conscious mind, and it works automatically when your focus is clear. When you turn the issue over to your subconscious, you gain speed and accuracy. Question and expose the beliefs you use to interpret how the world works. Beliefs, otherwise known as mental models — things you believe to be true but that may not actually reflect a widened view of reality — filter reality to confirm your previous experiences. Questioning your beliefs permits you to improve the accuracy of your analysis, jettison past connotations, and open up new possibilities. Observe your emotions. Step back to gain perspective and quiet the mental chatter so that you can accurately hear your inner voice. You’ll gain a wider view of the situation and be able to see alternatives. 3 ABILITY TO MANAGE RISK, How to Manage Entrepreneurial Risk First-time start up leaders and more seasoned entrepreneurs must develop a mind-set for risk management. Here are a few suggestions for approaching and reducing unpredictable variables in business. Understand that risk is opportunity from the earliest stages of a new business idea, risk and opportunity are inseparably linked. Entrepreneurs can make this connection when comparing their personal goals with possible entry points into the market. Preliminary research will almost always yield insight on both sides, which is why start up leaders need to have an understanding of their industry. Along with identifying opportunities, doing your research can ultimately help to mitigate and manage risk. The entrepreneur who closely observes consumer sentiment, for example, will have a better idea of how to steer clear of costly missteps. The same individual will also have a better frame of reference for what risks come with the territory. Recognizing the many benefits that come from developing an understanding of the demands of the market can make a notable difference for new business owners. On the opposite end of the spectrum, trying to identify opportunities without risk can lead to less-than-desirable results. Trust the process not every visionary entrepreneur will have a grasp of risk management from the outset, and that’s fine. In fact, one Halle Institute for Economic Research study demonstrated that most aspiring entrepreneurs consider themselves pretty conservative when it comes to taking risks. The paper also points out that entrepreneurs gain more tolerance for risk as they progress in their careers. Fortunately, each decision and change made by a business leader will bring some form of risk, which offers a valuable experience. One entrepreneur might launch his venture while employed elsewhere as a way to test the waters and slowly make the transition, while another might take a more direct approach. Either way, taking risks, which often means failure at some level, is generally worthwhile. Turn risk on its head another way to conceptualize risk management is risk selection. Market research will help in determining where and how to incur risk for a business, but on a much more basic level. Entrepreneurs who decide to start their own companies face more risk than those who opt to stay in their current or most recent position. The question, then, comes down to what holds greater uncertainty: security in an established job or potential success with a start up? Either choice will have its own set of risks, but the one major difference lies in the ability of entrepreneurs to call the shots for their companies. However, entrepreneurs must also realize that starting their own companies entails the possibility of failure. Thus, entrepreneurs will have to weigh the risks as they brainstorm possible business models. The risks associated with staying in one position or taking a new direction apply inside companies, as well, and perhaps more frequently so. Sometimes the only way to reach new heights is to make sacrifices, and this can be difficult to face, especially when a business has performed well. Going from a good situation to a better one will always involve risk, so business owners will have to ask themselves whether it’s worth it. Avoid complacency just as one should generally avoid business opportunities that present themselves as risk-free, so too should one continue finding ways to stretch in a company even after achieving success. While this doesn’t mean taking on risk for the sake of it, it does mean finding a balance between organic growth and reckless expansion. The organic model may never propel a business forward, while the latter may mean that it does not survive at all. 4 TIME MANAGEMENT SKILLS Establishing and maintaining a small business is incredibly hard work. In addition to developing a unique product or service, an entrepreneur is charged with marketing and selling it to customers, ensuring that all accounting tasks are accomplished and sometimes even manage an entire team of professionals. With so much responsibility, it is easy for things to get lost in the shuffle. For this reason alone, it is imperative for an entrepreneur to obtain effective time management skills and put them into practice on a daily basis. Set deadlines perhaps the most important step an entrepreneur can take to improve his time management skills to set deadlines for each of his tasks. This can be for large projects, such as the creation of a business plan, or small everyday duties, such as entering new customer data into the firm’s computer system. By setting and adhering to deadlines, he is better able to prioritize his work and plan his day so that each goal may be accomplished in a timely fashion. For this to work, it is important for an entrepreneur to set realistic deadlines for himself. For example, if it normally takes him 30 minutes to compose a sales letter, it is unreasonable him to set a goal of drafting six sales letters in a two-hour period. A more realistic goal would be to write six sales letters before the close of business. This will ensure that he achieves his goal, while eliminating the added stress of accomplishing the impossible. Make Lists The creation of lists is a simple way for an employer to keep her thoughts organized and ensure that nothing falls through the cracks. Lists can be made on any variety of subjects. She may create a daily to-do list. She may also draft a list of potential customers whom she would like call over the course of a month. In addition, lists of needed office supplies will come in handy on her next trip to Staples or Office Depot. When drafting a daily to-do list, it is important to keep it manageable. A long list of demanding tasks can be overwhelming and lead to stress. This involves creating one list containing three tasks that will be accomplished today, another of three that will be accomplished today if time permits and a final that lists three things that will be accomplished someday. This methodology will ensure that the day’s workload is manageable. Scheduling an entrepreneur can greatly improve his time management by maintaining a schedule by which he will accomplish his tasks. This will allow him to focus his energies on one specific duty as a time. For example, he may choose to only check his email twice a day, once in the morning and again in the late afternoon. He may also set aside a specific time in which to return phone calls each day. Likewise, he may block off a few hours each morning to focus on completing required paperwork. Entrepreneurial Action The pressing global challenges and the potential contribution an entrepreneurial architecture can make are significant. If the status quo is untenable and changing (as it appears to be), what actions are available for practitioners and educators seeking to accommodate a transition to a more robust form of entrepreneurship? First, it seems evident that architects and educators must make themselves students of local and global issues (and by extension opportunities) that transcend the built environment. Developing opportunistic solutions to critical issues that pertain to the built environment is a given; doing so for issues that bear no significant relationship to the built environment is transformation. Second, architects and educators must pro-actively establish relationships with other entrepreneurial entities. Such formal and informal networks can elevate the role of entrepreneurship within architectural education and practice (not to mention elevating architecture and design within bastions of business and entrepreneurship). Third, architects should explore practices and initiatives as a response to an expanded competency in global challenges and entrepreneurial solutions, rather than accepting the bounds of conventional practice. Fourth, architects, whatever the initiative, must embrace their role in advancing, promoting, and even financing solutions, rather than simply waiting for a benevolent client to embrace a common cause. The issues society confronts appear too significant and immediate for such an extension of the practice status quo. Architecture is entrepreneurship and a rapidly advancing storm of global challenges is bearing down upon it. ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ _______________________________________________________________ Industry specific terminology and language skills Architects are famous for using jargons and complicated expressions in their speech. Often, such expression is made to impress the clients and the listeners; without understanding whether the audience are able to interpret these words or not. In their education, architects and designers are trained to use non–verbal languages like drawings, sketches, diagrams, videos, animations etc. They can show a most difficult building solution by showing a simple sketch but if they are asked to explain it in a verbal language, often, they are uncomfortable and many a times either use jargons or are at loss of words. It does not only imply to architects, but most people who are in creative field feel the same when they have to express their ideas. The main reason behind this is that most architects and designers, during their academic years, invest their maximum time in developing their designing skills and do not give enough importance in learning communication and other management skills. Ways to Improve Your Business Language Skills Increase Your Vocabulary Improving vocabulary is key in mastering the specialized words used in business language. You can easily improve your vocabulary through training software that offers a comprehensive range of exercises. Learning commonly-used business idioms and abbreviations can also enhance your vocabulary. Furthermore, you can do research on the Internet in order to find the terminology used in the specific field that you are currently employed in. It is important that you adopt an inquisitive approach towards learning, and find the meaning of any business word that you are currently unfamiliar with. A business dictionary can prove to be particularly helpful, since you'll be able to find the complete meanings for new terms and their relevant usage within business communication. Read Business-Related Material You can significantly enhance your vocabulary by reading a wide variety of material related to your field or business. Reading business information and current updates will not only allow you to remain abreast with the recent changes in the business environment but also allow you to keep up with any changes in terminology. This knowledge can prove to be essential when you are communicating with third parties or working on customer contracts. Play Games You can even learn business language by playing games like crosswords and word sear These games can allow you to enhance your business vocabulary while ensuring that the learning process is fun and engaging. Business-themed language games include crosswords based on financial terms and important concepts, or word search games using terminology from banking or industry. You can use free word-search puzzle generators to create your own games, if you can't find one specific to your field. Watch Business-Oriented Programs Watching programs that focus on business is an excellent way to improve language skills, because the people in those programs will be using key terms frequently and correctly. These programs are often hosted by experts in the field and therefore can prove to be an important source of valuable information and knowledge as well as vocabulary terms. Business terminology is naturally used on these programs and merely watching them attentively can help you grasp terms that are part of business communications. Listening to or watching these programs will not only allow you to become familiar with new words but also learn their correct pronunciation and usage. Simple knowledge of business terminology cannot completely eliminate the chance of misunderstanding in organizations; rather, an employee must be able to correctly use the terms so that the underlying message is effectively communicated to the second party. Watching these programs will allow you to understand the current business scenario while also becoming familiar with a range of words and their proper uses. Practice Learning new business terminology will not impact your communication skills until and unless these terms are used correctly in the daily communication. You must try to use as many relevant words as possible during your conversations with colleagues and peers. Furthermore, recently learned business terminology can and should be incorporated into the presentations you give, so that you are able to gain confidence in your ability to use the terminology. Identify and describe the characteristics of a successful entrepreneur Why Do Some Businesses Succeed and Others Fail? It is important that we look at why businesses fail because then you’ll know what to avoid in starting and running your own business, and thereby increase your chances of success. Before we get to these, can you think of any reasons why your business might not succeed? ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ _______________________________________________________________ Now that you’ve thought about the reasons for why your business could fail, compare them to the following: Lack of management skills Some entrepreneurs don’t have the leadership ability to run a business. Also, they don’t have the necessary knowledge to manage a business. Lack of knowledge and/or experience Entrepreneurs need to have experience in the type of business they want to run. For example, if you want to start a retail clothing business, you should first work in a retail clothing store to gain some experience of how the business operates. If you don’t have the experience, you most certainly need knowledge of the type of business you’re interested in. For example, if you want to start a building business, you are destined to fail if you don’t have a basic qualification in the skills that you need, such as brick laying, plastering etc. SHORTAGE OF CAPITAL Many entrepreneurs make the mistake of starting their business with too little money, or they struggle to get money to operate their business. Very often they underestimate the costs involved when starting a business. Customer credit For many small businesses there is pressure to sell on credit rather than COD (cash on delivery). However, you cannot sell everything on credit, otherwise you won’t have cash for the day to day running of the business. Poor planning Many entrepreneurs do not realise the importance of planning. A business needs to be planned. Most businesses that fail have not had a well thought out plan. Over-investing in assets Entrepreneurs need money to run the business, but they also need assets. Often they buy too many assets and then do not have enough money to run their business. Stock shortages When a business does not have enough stock to sell, customers can become angry and stop supporting the business. Another problem is that many businesses have too much of the wrong stock. Lack of support Entrepreneurs need to have a lot of support when starting a business. If an entrepreneur does not have support from customers, friends and family then the business can fail. Unethical behaviour Entrepreneurs must practice ethical behaviour. This means that they must be honest in the way they run their businesses. Entrepreneurs who cheat or are dishonest may score for a short period but, over time, they usually lose. Poor financial management A lot of entrepreneurs spend the money the business makes, and forget to put some of this money back into the business to make it bigger and better. Don’t spend all your profits! Unrealistic expectations Unrealistic business owners are business owners who fail. Those who are successful have realistic goals and set their sights on what they can achieve. Success doesn’t happen overnight, but requires hard work and effort. Weak communication skills A person might have the best skills and the most amazing product but if he/she doesn’t have the communication skills to sell it to the world, the business is doomed. Complacency Business is a competition, and you must always be working to be better than your competitors. If you become complacent (too relaxed), your competitors will overtake you. Is failure bad? Absolutely not!! Most of the top entrepreneurs in the world have failed at some time in their careers. The difference is that they didn’t look for excuses, nor did they give up. Instead, they learnt from their errors and tried even harder, making sure not to make the same mistakes again. Here are the biggest myths about failure: Failure is avoidable IT’S NOT – Everybody fails Failure is an event IT’S NOT – It’s part of the journey to success Failure is objective IT’S NOT – It’s all about what you see as success and what as failure Failure is the enemy IT’S NOT – Don’t be afraid of failure. When you’re not scared, that’s when you’ll succeed Failure is irreversible IT’S NOT – Always look at failure in perspective __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ DISCUSS BUSINESS ETHICS AND SOCIAL RESPONSIBILITY What is Business Ethics? The concept has come to mean various things to various people, but generally it's coming to know what it right or wrong in the workplace and doing what's right -- this is in regard to effects of products/services and in relationships with stakeholders. Wallace and Peel explain that attention to business ethics is critical during times of fundamental change -- times much like those faced now by businesses, both nonprofit or for-profit. In times of fundamental change, values that were previously taken for granted are now strongly questioned. Many of these values are no longer followed. Consequently, there is no clear moral compass to guide leaders through complex dilemmas about what is right or wrong. Everyone benefits when architects volunteer in community nonprofit organizations. Do architects and architectural firms have a social responsibility beyond our practice? We all have heard about the social consequences of architecture and about architects having a responsibility to the community when they create a piece of architecture. But do we have a social responsibility that extends beyond our practice? What does social responsibility in architecture mean in our time? Certainly it means sustainable design, however you choose to define it. The definition of social responsibility and how sustainable design is implemented are hotly debated, but most of us would agree that two goals of sustainable design are to eliminate or minimize negative environmental impact of the built environment and to connect people with the natural environment. Social Responsibility in Practice The social responsibility of architects lies in part in believing that architecture can create better places, that architecture can affect society, and that it can even have a role in making a place civilized by making a community more livable. As a social catalyst, architecture is not as effective as, for example, stimulating a healthy economy by directly funding public construction, finding the cure for AIDS, ending homelessness, or improving education. It is definitely not as essential as farmers harvesting food or teachers educating students; a great school building does not itself teach even though it can provide a better environment for learning. All of these positions can be argued, but the reality is that it is difficult to substantiate the effects of architecture on our lives or the nature of a community. As architects, we want to believe that architecture affects the quality of life. Whether you believe that or not, one thing is true: As members of society, we can affect the quality of life in our communities through involvement beyond our practice. As citizens of our society, we can influence social conditions; we can even be the cause of positive social change. Very few of us would choose to give up all our personal possessions to help the poor or dedicate our entire life to a cause, but many of us do want to make a contribution to our social fabric. Many of us would likely be willing to give some portion of our time or financial resources to help the disadvantaged or to be a benefit to society. Beyond Practice As architects, we can have a significant role in improving the well-being of communities by being involved with nonprofit organizations. We can raise public awareness of critical social and environmental issues. One may argue that we chose the field of architecture because we have a calling to take a role in influencing the built environment beyond our practice. An architectural education facilitates the development of critical thinking abilities, which can be applied to solving problems and addressing situations beyond design. Our social responsibility is not limited to needs related to the built environment or environmental issues. Our critical thinking abilities can also be valuable in designing an organization or setting strategic goals and implementation plans. Architects or not, most individuals can have a role that has social impact. Whatever involvement you choose to have in an important cause will have an impact on other people’s lives. You may choose to contribute where you have a direct and emotional connection, such as grassroots work volunteering at a shelter to feed the homeless. Or you may choose to contribute indirectly by volunteering to serve on a committee to draft policies that help streamline the funding process for a homeless shelter. While these examples engender dissimilar feelings of self-satisfaction and different short- and long-term outcomes, both are important and valuable. Giving Gives Back Volunteering for nonprofit organizations, especially on the board of directors or in a committee, can give us insights into the challenges our clients face while managing and operating an organization. Architects tend to think of ourselves as being responsive to clients’ needs. There is no better way of learning to understand what those needs are than by being involved with a nonprofit organization. Nonprofits operate with the same challenges as regular businesses. In the current economic environment, nonprofits have become even more challenged financially as grants are more scarce, returns on investment of endowments are reduced, availability of tax credit financing are decreased, and monetary donations are diminished. Throughout my years of serving on the boards of nonprofit organizations, I have been able to cross-pollinate business practices between the nonprofits and my own architectural practice. In managing nonprofits, we had to deal with fundraising and applying for grants or tax credits to sustain the organization. We also had to deal with strategies to reduce overhead and payroll costs, resolve conflicts related to human resources, collaborate with other organizations, and retool marketing and public relations campaigns … just like any other business. In some instances, I was able to introduce business strategies I have used in my own practice that were helpful to the nonprofit. In other cases, I was able to learn strategies from the nonprofits that I found useful in my practice. For the past seven years I have served as a board member for A Community of Friends, a nonprofit developer of affordable housing for homeless people with special needs. The mission of A Community of Friends is to end homelessness through the provision of quality permanent supportive housing for people with mental illness. Our values are dignity (all people, regardless of their circumstances, deserve to be treated with respect and to have a home); excellence (we provide quality housing and services as a reflection of our personal and organizational commitment); and community (our projects and services promote sustainability and serve as a foundation for stability, health, and well-being). To date, A Community of Friends has completed more than 1,300 units in 35 properties, primarily throughout Los Angeles County, and it has several properties in development. As the architect on the board, I have encouraged our project development staff to produce projects with architectural sensitivity (which is not to say that the organization did not value good design prior to my involvement). A Community of Friends’ projects are a testament to the fact that good design can take place in the affordable housing realm. Several of our architects are from well-known firms, and several of our projects have received design awards. A Community of Friends is a client that sees the value of architecture and recognizes the important role of the architect. This organization also understands that good design is a valuable brand for our buildings, especially important because most communities where we develop our projects begin with a negative perception of the population we serve. Often during the entitlement process of our developments,— resistance to development from the local community. We have been able in most cases to shift the perception of the community by demonstrating that our projects are architecturally sensitive and pleasing, that our properties are well maintained once they are built, and that our existing properties have become positive assets to their surrounding neighborhoods. In addition to the importance we place on good design, our project committee has charged staff to develop a comprehensive sustainability program for our projects in development as well as for existing properties. This year we completed our first renewable energy source project by installing solar panels in an existing property. Our long-term goal is to have a comprehensive sustainability program that not only includes best practices in building and maintenance but also enhances the participation of tenants so that they can be more environmentally conscious while living in our properties. My involvement with A Community of Friends, an organization that is a developer, an operator, and a property manager, has provided me with a broader view on designing projects. As architects, once the project is complete we are hardly ever involved with the operation and management of the building. Seeing the results and the impact of decisions that were made during the design phase of the project on the profit and loss of each property has given me deeper insight into the importance of those design decisions. For instance, the way each residential unit is configured has an impact on the unit turnaround (how often the unit is vacant) and the vacancy rate (how long the unit is vacant). The unit turnaround and vacancy rate of a property have a direct impact on the profit and loss of the property. Even though there are not enough supportive housing inventories in our tenants’ market, the individuals we serve sometimes prefer to remain homeless and wait for an opening at a property with a more desirable configuration than to move in to the first available property. The main reason is that once they are placed in permanent supportive housing, they are no longer homeless, and then it is harder to qualify for a move. Prepare input for a business plan and analyse it once completed Write Your Business Plan A business plan is an essential roadmap for business success. This living document generally projects 3-5 years ahead and outlines the route a company intends to take to grow revenues. Executive Summary The executive summary is often considered the most important section of a business plan. This section briefly tells your reader where your company is, where you want to take it, and why your business idea will be successful. If you are seeking financing, the executive summary is also your first opportunity to grab a potential investor’s interest. The executive summary should highlight the strengths of your overall plan and therefore be the last section you write. However, it usually appears first in your business plan document. Below are several key points that your executive summary should include based on the stage of your business. If you are an established business, be sure to include the following information: The Mission Statement – This explains what your business is all about. It should be between several sentences and a paragraph. Company Information – Include a short statement that covers when your business was formed, the names of the founders and their roles, your number of employees, and your business location(s). Growth Highlights – Include examples of company growth, such as financial or market highlights (for example, “XYZ Firm increased profit margins and market share year-over-year since its foundation). Graphs and charts can be helpful in this section. Your Products/Services -- Briefly describe the products or services you provide. Financial Information – If you are seeking financing, include any information about your current bank and investors. Summarize future plans – Explain where you would like to take your business. With the exception of the mission statement, all of the information in the executive summary should be covered in a concise fashion and kept to one page. The executive summary is the first part of your business plan many people will see, so each word should count. If You Are a Startup or New Business If you are just starting a business, you won't have as much information as an established company. Instead, focus on your experience and background as well as the decisions that led you to start this particular enterprise. Demonstrate that you have done thorough market analysis. Include information about a need or gap in your target market, and how your particular solutions can fill it. Convince the reader that you can succeed in your target market, and then address your future plans. Remember, your Executive Summary will be the last thing you write. So the first section of the business plan that you will tackle is the Company Description section. Company Description This section of your business plan provides a high-level review of the different elements of your business. This is akin to an extended elevator pitch and can help readers and potential investors quickly understand the goal of your business and its unique proposition. You need to include the following in your company description: Describe the nature of your business and list the marketplace needs that you are trying to satisfy. Explain how your products and services meet these needs. List the specific consumers, organizations or businesses that your company serves or will serve. Explain the competitive advantages that you believe will make your business a success such as your location, expert personnel, efficient operations, or ability to bring value to your customers. Next, you’ll need to move on to the Market Analysis section of your plan. Market Analysis The market analysis section of your business plan should illustrate your industry and market knowledge as well as any of your research findings and conclusions. This section is usually presented after the company description. You need to include the following in your market analysis: Industry Description and Outlook – Describe your industry, including its current size and historic growth rate as well as other trends and characteristics (e.g., life cycle stage, projected growth rate). Next, list the major customer groups within your industry. Information About Your Target Market – Narrow your target market to a manageable size. Many businesses make the mistake of trying to appeal to too many target markets. Research and include the following information about your market: Distinguishing characteristics – What are the critical needs of your potential customers? Are those needs being met? What are the demographics of the group and where are they located? Are there any seasonal or cyclical purchasing trends that may impact your business? Size of the primary target market – In addition to the size of your market, what data can you include about the annual purchases your market makes in your industry? What is the forecasted market growth for this group? For more information, see our market research guide for tips and free government resources that can help you build a market profile. How much market share can you gain? – What is the market share percentage and number of customers you expect to obtain in a defined geographic area? Explain the logic behind your calculation. Pricing and gross margin targets – Define your pricing structure, gross margin levels, and any discount that you plan to use. When you include information about any of the market tests or research studies you have completed, be sure to focus only on the results of these tests. Any other details should be included in the appendix. Competitive Analysis – Your competitive analysis should identify your competition by product line or service and market segment. Assess the following characteristics of the competitive landscape: Market share Strengths and weaknesses How important is your target market to your competitors? Are there any barriers that may hinder you as you enter the market? What is your window of opportunity to enter the market? Are there any indirect or secondary competitors who may impact your success? What barriers to market are there (e.g., changing technology, high investment cost, lack of quality personnel)? Regulatory Restrictions – Include any customer or governmental regulatory requirements affecting your business, and how you’ll comply. Also, cite any operational or cost impact the compliance process will have on your business. Once you’ve completed this section, you can move on to the Organization & Management section of your business plan. Organization & Management Organization and Management follows the Market Analysis. This section should include: your company's organizational structure, details about the ownership of your company, profiles of your management team, and the qualifications of your board of directors. Who does what in your business? What is their background and why are you bringing them into the business as board members or employees? What are they responsible for? These may seem like unnecessary questions to answer in a one- or two-person organization, but the people reading your business plan want to know who's in charge, so tell them. Give a detailed description of each division or department and its function. This section should include who's on the board (if you have an advisory board) and how you intend to keep them there. What kind of salary and benefits package do you have for your people? What incentives are you offering? How about promotions? Reassure your reader that the people you have on staff are more than just names on a letterhead. Organizational Structure A simple but effective way to lay out the structure of your company is to create an organizational chart with a narrative description. This will prove that you're leaving nothing to chance, you've thought out exactly who is doing what, and there is someone in charge of every function of your company. Nothing will fall through the cracks, and nothing will be done three or four times over. To a potential investor or employee, that is very important. Ownership Information This section should also include the legal structure of your business along with the subsequent ownership information it relates to. Have you incorporated your business? If so, is it a C or S corporation? Or perhaps you have formed a partnership with someone. If so, is it a general or limited partnership? Or maybe you are a sole proprietor. The following important ownership information should be incorporated into your business plan: Names of owners Percentage ownership Extent of involvement with the company Forms of ownership (i.e., common stock, preferred stock, general partner, limited partner) Outstanding equity equivalents (i.e., options, warrants, convertible debt) Common stock (i.e., authorized or issued) Management Profiles Experts agree that one of the strongest factors for success in any growth company is the ability and track record of its owner/management team, so let your reader know about the key people in your company and their backgrounds. Provide resumes that include the following information: Name Position (include brief position description along with primary duties) Primary responsibilities and authority Education Unique experience and skills Prior employment Special skills Past track record Industry recognition Community involvement Number of years with company Compensation basis and levels (make sure these are reasonable -- not too high or too low) Be sure you quantify achievements (e.g. "Managed a sales force of ten people," "Managed a department of fifteen people," "Increased revenue by 15 percent in the first six months," "Expanded the retail outlets at the rate of two each year," "Improved the customer service as rated by our customers from a 60 percent to a 90 percent rating") Also highlight how the people surrounding you complement your own skills. If you're just starting out, show how each person's unique experience will contribute to the success of your venture. Board of Directors' Qualifications The major benefit of an unpaid advisory board is that it can provide expertise that your company cannot otherwise afford. A list of well-known, successful business owners/managers can go a long way toward enhancing your company's credibility and perception of management expertise. If you have a board of directors, be sure to gather the following information when developing the outline for your business plan: Names Positions on the board Extent of involvement with company Background Historical and future contribution to the company's success Next, move on to the Service or Product Line section of your plan. Service or Product Line Once you’ve completed the Organizational and Management section of your plan, the next part of your business plan is where you describe your service or product, emphasizing the benefits to potential and current customers. Focus on why your particular product will fill a need for your target customers. Include information about the specific benefits of your product or service – from your customers' perspective. You should also talk about your product or service's ability to meet consumer needs, any advantages your product has over that of the competition, and the current development stage your product is in (e.g., idea, prototype). Be sure to include information about where your product or service is in its life cycle, as well as any factors that may influence its cycle in the future. If you have any existing, pending, or any anticipated copyright or patent filings, list them here. Also disclose whether any key aspects of a product may be classified as trade secrets. Last, include any information pertaining to existing legal agreements, such as nondisclosure or non-compete agreements. Outline any R&D activities that you are involved in or are planning. What results of future R&D activities do you expect? Be sure to analyze the R&D efforts of not only your own business, but also of others in your industry Next, move on to the Marketing & Sales Management section of your plan. Marketing & Sales Once you’ve completed the Service or Product Line section of your plan, the next part of your business plan should focus on your marketing and sales management strategy for your business. Marketing is the process of creating customers, and customers are the lifeblood of your business. In this section, the first thing you want to do is define your marketing strategy. There is no single way to approach a marketing strategy; your strategy should be part of an ongoing business-evaluation process and unique to your company. However, there are common steps you can follow which will help you think through the direction and tactics you would like to use to drive sales and sustain customer loyalty. An overall marketing strategy should include four different strategies: A market penetration strategy. A growth strategy: This strategy for building your business might include: an internal strategy such as how to increase your human resources, an acquisition strategy such as buying another business, a franchise strategy for branching out, a horizontal strategy where you would provide the same type of products to different users, or a vertical strategy where you would continue providing the same products but would offer them at different levels of the distribution chain. Channels of distribution strategy: Choices for distribution channels could include original equipment manufacturers (OEMs), an internal sales force, distributors, or retailers. Communication strategy: How are you going to reach your customers? Usually a combination of the following tactics works the best: promotions, advertising, public relations, personal selling, and printed materials such as brochures, catalogs, flyers, etc. After you have developed a comprehensive marketing strategy, you can then define your sales strategy. This covers how you plan to actually sell your product. Your overall sales strategy should include two primary elements: A sales force strategy: If you are going to have a sales force, do you plan to use internal or independent representatives? How many salespeople will you recruit for your sales force? What type of recruitment strategies will you use? How will you train your sales force? What about compensation for your sales force? Your sales activities: When you are defining your sales strategy, it is important that you break it down into activities. For instance, you need to identify your prospects. Once you have made a list of your prospects, you need to prioritize the contacts, selecting the leads with the highest potential to buy first. Next, identify the number of sales calls you will make over a certain period of time. From there, you need to determine the average number of sales calls you will need to make per sale, the average dollar size per sale, and the average dollar size per vendor. Next, if you are seeking financing for your business, you’ll need to complete the next part of your plan – Funding Request. Funding Request If you are seeking funding for your business venture, use this section to outline your requirements. Your funding request should include the following information: Your current funding requirement Any future funding requirements over the next five years How you intend to use the funds you receive: Is the funding request for capital expenditures? Working capital? Debt retirement? Acquisitions? Whatever it is, be sure to list it in this section. Any strategic financial situational plans for the future, such as: a buyout, being acquired, debt repayment plan, or selling your business. These areas are extremely important to a future creditor, since they will directly impact your ability to repay your loan(s). When you are outlining your funding requirements, include the amount you want now and the amount you want in the future. Also include the time period that each request will cover, the type of funding you would like to have (e.g., equity, debt), and the terms that you would like to have applied. To support your funding request you’ll also need to provide historical and prospective financial information. Financial Projections You should develop the Financial Projections section after you've analyzed the market and set clear objectives. That's when you can allocate resources efficiently. The following is a list of the critical financial statements to include in your business plan packet. Historical Financial Data If you own an established business, you will be requested to supply historical data related to your company's performance. Most creditors request data for the last three to five years, depending on the length of time you have been in business. The historical financial data to include are your company's income statements, balance sheets, and cash flow statements for each year you have been in business (usually for up to three to five years). Often, creditors are also interested in any collateral that you may have that could be used to ensure your loan, regardless of the stage of your business. Prospective Financial Data All businesses whether startup or growing, will be required to supply prospective financial data. Most of the time, creditors will want to see what you expect your company to be able to do within the next five years. Each year's documents should include forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets. For the first year, you should supply monthly or quarterly projections. After that, you can stretch it to quarterly and/or yearly projections for years two through five. Make sure that your projections match your funding requests; creditors will be on the lookout for inconsistencies. It's much better if you catch mistakes before they do. If you have made assumptions in your projections, be sure to summarize what you have assumed. This way, the reader will not be left guessing. Finally, include a short analysis of your financial information. Include a ratio and trend analysis for all of your financial statements (both historical and prospective). Since pictures speak louder than words, you may want to add graphs of your trend analysis (especially if they are positive). Next, you may want to include an Appendix to your plan. This can include items such as your credit history, resumes, letters of reference, and any additional information that a lender may request. Appendix The Appendix should be provided to readers on an as-needed basis. In other words, it should not be included with the main body of your business plan. Your plan is your communication tool; as such, it will be seen by a lot of people. Some of the information in the business section you will not want everyone to see, but specific individuals (such as creditors) may want access to this information to make lending decisions. Therefore, it is important to have the appendix within easy reach. The appendix would include: Credit history (personal & business) Resumes of key managers Product pictures Letters of reference Details of market studies Relevant magazine articles or book references Licenses, permits or patents Legal documents Copies of leases Building permits Contracts List of business consultants, including attorney and accountant Any copies of your business plan should be controlled; keep a distribution record. This will allow you to update and maintain your business plan on an as-needed basis. Remember, too, that you should include a private placement disclaimer with your business plan if you plan to use it to raise capital. How to make your business plan stand out? One of the first steps to business planning is determining your target market and why they would want to buy from you. For example, is the market you serve the best one for your product or service? Are the benefits of dealing with your business clear and are they aligned with customer needs? If you're unsure about the answers to any of these questions, take a step back and revisit the foundation of your business plan. The following tips can help you clarify what your business has to offer, identify the right target market for it and build a niche for yourself. Be Clear About What You Have to Offer Ask yourself: Beyond basic products or services, what are you really selling? Consider this example: Your town probably has several restaurants all selling one fundamental product food. But each is targeted at a different need or clientele. One might be a drive-thru fast food restaurant, perhaps another sells pizza in a rustic Italian kitchen, and maybe there’s a fine dining seafood restaurant that specializes in wood-grilled fare. All these restaurants sell meals, but they sell them to targeted clientele looking for the unique qualities each has to offer. What they are really selling is a combination of product, value, ambience and brand experience. When starting a business, be sure to understand what makes your business unique. What needs does your product or service fulfill? What benefits and differentiators will help your business stand out from the crowd? Don’t Become Jack of All Trades-Learn to Strategize It’s important to clearly define what you’re selling. You do not want to become a jack-of-all trades and master of none because this can have a negative impact on business growth. As a smaller business, it's often a better strategy to divide your products or services into manageable market niches. Small operations can then offer specialized goods and services that are attractive to a specific group of prospective buyers. Identify Your Niche Creating a niche for your business is essential to success. Often, business owners can identify a niche based on their own market knowledge, but it can also be helpful to conduct a market survey with potential customers to uncover untapped needs. During your research process, identify the following: Which areas your competitors are already well-established Which areas are being ignored by your competitors Potential opportunities for your business Assess the viability of the intended market Understand your market and competitors Growing your business without understanding your competitors is risky. Market research can prepare you for changing markets and prevent your business being left behind by the competition. Conduct market research Market research involves collecting and analysing information about your market, including your customers and competitors. It is vital to research any new market you are moving into to avoid wasting time and money on failed projects. There are 3 main ways to conduct market research: desk research - using existing information from the internet and industry publications field research - gathering the information yourself using surveys, questionnaires and other research tools commercial agencies - hiring external organizations that carry out the research for you. Researching your competitors is easier than it may seem - for example, you can simply collect any flyers and price lists they produce for customers, read their online material, or even buy their products and services to compare them with your own. Analyze what they do better than you: Are their prices lower? Are their products of a higher quality? Is their customer service highly regarded? Is their marketing material more engaging? Ask yourself these questions to see where you can improve. Being critical of your own business and taking inspiration from your competitors can help you be more competitive. Undertake a competitor profile A SWOT analysis can be a useful way to assess where you stand in your market in relation to your competitors. It is a common and easily used business analysis tool. A SWOT analysis can help you to: build on strengths (S) minimize weaknesses (W) seize opportunities (O) counteract threats (T). Find a unique selling proposition The most effective way to stand out among a field of competitors is to have a unique selling proposition (USP). Undertaking market research is an important first step to creating a USP. Once you have carried out your market research, analyses it closely to see if you can spot a gap or opportunity in the market that none of your competitors are currently exploiting. This could be: a product or service not currently offered by your competitors a group of customers not currently catered for by your competitors an aspect of your business that makes it stand out from the competition. Consider what your customers are looking for. What 'need' or 'want' are they really trying to satisfy? Once you have a USP, and verified that your market research backs it up, you will need to find the most effective way of communicating it to your customers. Businesses often communicate by creating: a new or unique marketing campaign an engaging and memorable advertisement a slogan that customers will remember. It's important to make your USP memorable so that potential customers will think of your product or service before a competitor's. A fast-track to creating a USP is through innovation. By creating new products and services, or producing better designs for existing ones, you can ensure customers retain an interest in your business. This can also give you a boost in profits when new products are brought to market. Using strategies to compete Competition exists in every successful market, and you must be able to employ the strongest competition strategies to make the most of your business. Market research should provide evidence of your competitors' prices and the price customers are willing to pay for your products and services. It is vital to set your prices at a level that ensures your business remains profitable yet prevents your customers from looking elsewhere. Pricing strategies can include: discounting - temporarily lowering prices or offering two for the price of one image pricing - where the perceived image of the product outweighs the actual price, such as in luxury goods. Engaging in a price war with your competitors is risky business. When prices are low, customers are often willing to buy more; however, there is no guarantee your product will be the one customers choose. Price wars also often lead to reduced profit margins and lower prices across the market. To ensure the stability of your business, a sensible strategy that avoids price wars is almost always a better approach. If a competitor engages you in a price war, it can be better to try to reinforce your unique selling proposition to sidestep the challenge. Though many customers will see a product's price as the crucial factor in deciding where to spend their money, in the long term a business can benefit more from creating good-quality products and offering excellent customer service. If your customers have a positive buying experience, they are far more likely to come back. Customer retention is important for competition and gives your long- term business prospects a boost. It is vital to maintain high levels of quality and service - if standards begin to slip, customers may be unforgiving and switch to your competitors. A good sales team and a solid marketing plan are excellent ways to communicate the benefits of your products and services to customers. Businesses grow by securing new customers, and effective sales and marketing strategies can help you succeed. Using fair and legal competitive practices When competition is fierce in an industry, it is important to remember the laws every business must follow when securing their place in the market. The most important law to be aware of is the Competition and Consumer Act 2010, which aims to give businesses a fair and competitive operating environment. The Act covers: contract law and unfair contract terms consumer rights when buying goods and services product safety law and enforcement unsolicited consumer agreements, including laws on door-to-door sales and other direct marketing penalties, enforcement powers and the rights of consumers to seek compensation. Overview of Target Markets A target market is a market segment that has been deliberately selected by an organization, in order to focus their marketing efforts. Organizations may have several target markets and will typically have distinct market offerings each of them. The concept of a target market is an important aspect of modern day marketing, especially as the vast majority of firms focus on the needs of a particular market segment/s, rather than the overall market (which is known as mass marketing). The starting point of the marketing concept, which is the foundation of most marketing textbooks, is the selection of a target market. Definitions for target markets tend to be reasonably similar across most marketing textbooks as follows: A target market is a market segment that has been deliberately selected by an organization in order to focus their marketing efforts and offerings. Importance of target markets Virtually all organizations today focus their marketing efforts on specific target markets. Certainly in previous business eras, it was more common for organizations to have a fairly generic offering and engage in what is referred to as mass marketing. However, with the increased level of competition, particularly from firms with well-defined market offerings, it is very difficult to be successful with this generic approach to marketing. A target market allows the firm to focus its marketing efforts and develop a unique positioning and marketing mix that strongly matches the needs of that part of the market. This approach is a foundation of modern marketing and is the first part of the marketing concept (which most marketing textbooks use as part of their structural framework). Without a clear target market, an organization will have a limited understanding of the market, will probably have vague or weak offerings, and will generally have a weakened competitive position. Therefore, defining and pursuing clear target market/s is a critical part of business success. Evaluating Target Markets The selection of target markets involves the examination of various aspects and measures of a market segment in comparison to the firm’s goals and resources. Typically, the firm assesses whether this particular target market logically fits with the firm’s strategic direction, whether it is the best use of its resources (opportunity cost), and to what degree with a firm be able to successfully compete in the segment. Target market selection is a very important decision for an organization as it is an integral part of their marketing strategy. As consequence, firms will typically adopt a fairly analytical approach to target market selection and will usually use to set criteria to evaluate and assess each market. As can be seen in the following model of the full STP (segmentation, targeting and positioning) process, the selection of target markets occurs after a number of important steps. Firstly, the organization defines the product/market that they are interested in, they then group consumers into different market segments using a variety of segmentation bases/variables. After the segments have been validated, segment profiles are developed. Then, using the information in the segment profile the target potential target markets are evaluated and selected, most likely by using an established model or other set of minimum requirements. Selecting Target Markets The selection of target markets is the second major phase of the STP process, as shown in the diagram below. (Where STP stands for segmentation, targeting and positioning.) As shown, firms initially segment the market and, as part of this process, construct segment profiles for each segment. Included in a segment profile is a detailed description of the segment, along with various size and profit measures. Using this information in conjunction with the firm’s strategy, resources and goals organization appropriate target markets can then be selected. The selection of a target market is a very important decision for a firm as it then requires significant effort and commitment to implement an appropriate and targeted marketing mix. Target market selection is a key part of marketing strategy and typically involves significant analysis, discussion and review throughout the firm. There is a separate section in this study guide that outlines an example of target market selection, but as a quick introduction, some of the factors that are organization would consider are as follows: Selection factor What to consider? Segment size What is the size of the segment (mainly in terms of unit and revenue sales)? And is this substantial enough for the firm to consider entering? Segment growth rate at what rate is the segment growing (or perhaps declining)? What is its future outlook? Profit margins Is this a high profit margin segment or one that is price competitive? Competitors How dominant are the established competitors? What degree of competitive rivalry exists? Are there significant indirect competitors (or close substitute products)? Distribution channels How easy would it be to gain access to the appropriate distribution channels? What level of new investment would be required in this regard? Role of brand Would the firm be required to create a new brand, or could an existing brand be leveraged into the new target market, or is brand relatively unimportant? Strategy/goals How well does the proposed target market fit with the firm’s strategic direction and growth goals? Resources Does the firm have the capability, in terms of financial and marketing resources, to successfully compete in this segment? Understanding market research Simply stated, market research is defined as the process of gathering data on goods and services to determine whether the product or service will satisfy customers' needs. Market research can identify market trends, demographics, economic shifts, customer's buying habits, and important information on competition. You will utilize this information to define your target markets and establish a competitive advantage in the marketplace. For market research to be useful, the information must be timely and relevant to your business. A successful new venture sells customer’s goods and services they want or need and continually grows a base of satisfied customers. Hundreds of thousands of people consider starting new businesses each year, and each of them will ask themselves the same questions: Does my product or service fill a need? Who will buy my product or service? What will my price point be? What are the trends in my industry? Who are my competitors? This information isn't just interesting or "nice to know." Rather, it is essential information to guide you in making strategic business decisions. By gathering research about your business concept, industry, potential customers, and competitors, you can uncover or verify unmet customer needs in the marketplace, and, many times, discover new ideas for products or services. Market research can provide you with value that should exceed the time and cost of the research itself. It can help you minimize your financial risks by determining if your product or service will succeed or fail in the marketplace, and perhaps save you from making costly mistakes. Market research helps you to: Communicate effectively to your target markets through advertising and promotions. By researching your customers and their spending and buying habits, you can create marketing campaigns to meet their specific interests and needs. Identify and understand opportunities that exist in the marketplace. For example, through preliminary market research, you might find an opportunity to start your business in a geographic location you had not considered before, where little or no competition exists for your product or service. Pinpoint potential obstacles or problems with your business concept. Through research, you may uncover direct or indirect competitors you had not considered before who may inhibit your ability to gain a competitive advantage in the market. You might also discover future development plans that could include big-box retailers in your target market location. This information is important to discover because it can help to minimize your short-term and long-term financial risks. Benchmark and evaluate your success. By knowing the size of your market, how your competitors are doing and who their customers are, you can set goals to reach your market, grow your customer base, and track how you are doing in relation to the competition. How to Determine Market Viability for a Product or Service? Failure of a product or service can produce an extremely negative impact on a small business. To prevent this effect, small-business owners conduct market research before the release of a new product or service to determine if their offering is likely to appeal to a target market of customers as intended. Step 1: Check out businesses in the geographic area you plan to target to determine the level of competition you might experience, types of marketing efforts that may succeed or fail and demographics of customers who purchased a similar product or service. For example, visit competitor stores and websites, evaluate promotion and sales efforts and observe foot traffic. Step 2: Make a list of customer demographics, such as age, family status and income, that you believe target customers for your type of new offering share based on your competitor evaluation and expert analyses from industry publications. If your budget allows, hire a market research firm to provide you with customer demographics data for local, national or international sales of similar products or services. Step 3: Narrow your target market by requesting feedback from a small group of people that have the customer demographics you're considering. For example, buy a list of targeted contact leads from a direct marketing or survey firm and then send a questionnaire to the group that asks about their demographics, interests and shopping habits, such as their reasons for shopping at certain stores and types of products or services they value most. Step 4: Invite 15 or 20 people from your narrowed list to try a prototype or limited release of a product to get their general responses and feedback about ways you can make the offering better. For example, allow those in your test group to try your offering for 10 days and then ask them to complete a survey or participate in a face-to-face focus group discussion about what they liked or disliked. Step 5: Change your plan based on your research as needed and then conduct additional survey and focus group research. Repeat this process until you feel you have a product or service that can succeed with your target customers. Step 6: Make a list of other factors besides customer opinion that can affect the success of your offering. Such factors include natural or man-made disasters, economic changes, new businesses or emerging technologies. Make a list of alternative methods to attract customers, boost sales or expand your offering to other markets if necessary. Step 7: Estimate the initial and long-term costs for developing, releasing and promoting a product based on your research and cost estimates from those directly involved with the project, such as designers, manufacturers, advertisers, project managers and team members. Step 8: Analyze all of your data to determine if you should move forward with your new product or service. How to Find the Market Size for a Product? Prior to launching a new product or starting a new business, entrepreneurs and companies conduct extensive research on their target market. This includes looking at the buying habits and values of consumers, as well as the performance and perception of competing brands. All of these factors funnel into the market size for the proposed product or service. Creating an accurate picture of market size helps organizations assess whether their consumer base is large enough to drive sales and help their businesses succeed. Step 1: Determine who and where your target market is. Gather information on your organization’s ideal demographic, including income, ethnicity, languages, education level, profession, values and motivations for purchasing within the marketplace. Look at consumers’ goals and values, and connect your market positioning with the needs of those individuals. Cross-reference this data with your target markets’ brand choices and media consumption patterns. Likewise, define geographical regions where potential customers are located, and identify possible production or distribution constraints. For example, a bakery delivering delicate, custom-made cakes will need to reach customers living within a certain distance from packaging facilities to ensure product quality. Step 2: Estimate the amount of market share, or percentage of total market sales, your brand can potentially gain. Research your competitors extensively, including company histories, pricing strategies, product or service offerings and market positioning. Incorporate this information into your overall market size analysis and strategy. Step 3: Conduct a focus group or survey. Invite participants who fit the criteria you have established for your target demographic. Include questions on pricing, packaging and purchasing habits. For example, ask questions regarding purchase frequency for your product or service category within a set time period. Consolidate and analyze feedback in conjunction with the rest of your market analysis. Step 4: Look at how fast or slow your target market is growing. Consider external socioeconomic trends, and domestic and international events that influence your product’s market. For example, food products may be more vulnerable to severe weather patterns and climate changes. Refer to government and professional industry sources for information on data such as expected production, and consumption habits. References H.H. Stevenson and J.C. Jarillo, “A Paradigm for Entrepreneurship: Entrepreneurial Management,” no. 11 (1990): 17-27.

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