Entrepreneurship Lecture 7 - Accounting for Entrepreneurs - PDF

Entrepreneurship Lecture 7 Accounting for entrepreneurs Caroline Teh [email protected]  Financial management’s main functions The main financial Financial objectives of a firm sta...

Entrepreneurship Lecture 7 Accounting for entrepreneurs Caroline Teh [email protected]  Financial management’s main functions The main financial Financial objectives of a firm statement components What is accounting and what Double-entry bookkeeping is its main purpose? system Historical vs pro forma Analysis of financial financial statements statements /Ratio analysis 1  …deals with… …raising money …achieving the best financial outcome 2 …deals with… How are we doing? Are we making or losing money? How much cash do we have on hand? Do we have enough cash to meet our short-term obligations? How efficiently are we utilizing our assets? How do our growth and net profits compare to those of our industry peers? Where will the funds we need for capital improvements come from? Are there ways we can partner with other firms to share risk and reduce the amount of cash we need? Overall, are we in good shape financially? 3  Profitability Liquidity Efficiency Stability A firm’s A firm’s How How ability to ability to productively healthy the make a cover its a firm financial profit short-term utilizes its structure of liabilities assets a firm is Many start-ups are Even if a firm is Assets should not For a firm to be not profitable during profitable, it is often remain inactive for a stable, it must not their first one to a challenge to keep long period. only earn a profit and three years enough money in the remain liquid but In the long run a bank to meet its also keep its debt in firm must become routine obligations in check. profitable to remain a timely manner. viable and provide a return to its owners. 4 To assess whether its financial objectives are being met, firms rely heavily on analysis of financial statements - accounting information Accounting is the language of financial information. 5 A story teller Personal effort / Tools/ Work Assets Raw material Cost: SEK 1000 Sales: SEK 1500 Profit: SEK 500 Goods/services for sale 6 A story teller / A language “the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information” (A Statement of Basic Accounting Theory, 1966) Users (or Stakeholders) can be: BEWARE! External: Internal: The terms Owners/shareholders Management “stakeholder” and Prospectors Other employees “shareholder” do not Tax authorities have the same Creditors/banks/ meaning!!! government 7 The information is conveyed to different people through a wide range of channels: Externally – financial accounting Financial statements are written reports that quantitatively describes a firm’s financial health Pro forma financial statements are similar to historical financial statements except that they look forward rather than track the past Internally – managerial accounting Forecasts/Budgets are estimates of a firm’s future income and expenses, based on past performance, its current circumstances, and its future plans or; are itemized forecasts of a company’s income, expenses, and capital needs and are also an important tool for financial planning and control 8 Financial information is interdependent on other financial information Construct Close the financial accounts statements a reporting period cycle Analyze Do the book- financial keeping statements Prepare forecasts / budgets 9 Historical Financial Statements… reflect past performance are usually prepared on a quarterly and annual basis are usually prepared under specific rules/principles should be published for specific companies e.g. Listed companies Provide external stakeholders with reassurance Pro Forma Financial Statements… are projections for future periods based on forecasts are typically completed for two to three years in the future are strictly planning tools and usually confidential do not have to be published Useful when constructing a business plan and when seeking financing. Remember! Pro forma financial statements are similar to historical financial statements except that they look forward rather than track the past (Are based on forecasts than on actual transactions) 10 The basic components of the Annual Report: Income Statement (a.k.a. Statement of Revenues & Expenses profit or loss, Profit and Loss Account) Gains & Losses Assets Balance Sheet (a.k.a. Statement of Liabilities financial position) Equity (Capital) Statement of cash flows Cash inflows & outflows Notes to the Annual report 11 Revenue or Sales: The amount of money that a company receives during a specific period, including discounts and deductions for returned merchandise. It is the "top line" or "gross income" figure from which costs are subtracted to determine net income Expenses: The economic costs that a business incurs through its operations to earn revenue. 12  INCOME STATEMENT Year X One objective of the income statement is to Sales XXX determine the Net Less Cost Of Goods Sold (XXX) Income for a reporting Gross profit XXX period. Less Operating Expenses (XXX) Less Selling, General & Administrative Expenses (XXX) Less depreciation (XXX) How do we get there? Operating Income (EBIT) XXX Financial (Interest) Income (XXX) Less Financial (Interest) Expenses (XXX) Other Income (XXX) Less Other Expenses (XXX) Earnings before taxes XXX Less taxes (XXX) Net Income XXX 13  INCOME STATEMENT Year X Sales XXX Less Cost Of Goods Sold (XXX) How much did I make from my sales? Gross profit XXX Less Operating Expenses (XXX) Less Selling, General & Administrative Expenses (XXX) Less depreciation (XXX) Operating Income (EBIT) XXX Financial (Interest) Income (XXX) Less Financial (Interest) Expenses (XXX) Other Income (XXX) Less Other Expenses (XXX) Earnings before taxes XXX Less taxes (XXX) Net Income XXX 14  INCOME STATEMENT Year X Sales XXX Less Cost Of Goods Sold (XXX) How much did I make from my sales? Gross profit XXX Less Operating Expenses (XXX) Less Selling, General & Administrative Expenses (XXX) How much did I make from my usual Less depreciation (XXX) activities? Operating Income (EBIT) XXX Financial (Interest) Income (XXX) Less Financial (Interest) Expenses (XXX) Other Income (XXX) Less Other Expenses (XXX) Earnings before taxes XXX Less taxes (XXX) Net Income XXX 15  INCOME STATEMENT Year X Sales XXX Less Cost Of Goods Sold (XXX) How much did I make from my sales? Gross profit XXX Less Operating Expenses (XXX) Less Selling, General & Administrative Expenses (XXX) How much did I make from my usual Less depreciation (XXX) activities? Operating Income (EBIT) XXX Financial (Interest) Income (XXX) Less Financial (Interest) Expenses (XXX) How much did I make from other Other Income (XXX) Less Other Expenses (XXX) activities? Earnings before taxes XXX Less taxes (XXX) Net Income XXX 16  INCOME STATEMENT Year X Sales XXX Less Cost Of Goods Sold (XXX) How much did I make from my sales? Gross profit XXX Less Operating Expenses (XXX) Less Selling, General & Administrative Expenses (XXX) How much did I make from my usual Less depreciation (XXX) activities? Operating Income (EBIT) XXX Financial (Interest) Income (XXX) Less Financial (Interest) Expenses (XXX) How much did I make from other Other Income (XXX) Less Other Expenses (XXX) activities? Earnings before taxes XXX Less taxes (XXX) How much is left at the end of the Net Income XXX period? 17 Asset: A resource with economic value that an individual or corporation owns or controls with the expectation that it will provide future benefit. Example: a machine used in production. Liability: A company's legal debts or obligations that arise during the course of business operations. Liabilities are settled over time through the transfer of economic benefits including money, goods or services. Example: a bank loan. Equity: The amount of the funds contributed by the owners (the stockholders) plus the retained earnings (or losses). Also referred to as "shareholders' equity“. Example: the funds raised when issuing new equity. Accounting equation: Assets = Liabilities + Equity i.e. A=L+E, A-L=E, A-E=L 18  Balance Sheet ASSETS LIABILITIES Current Assets Current Liabilities Cash XXX Accounts payable XXX Accounts receivable XXX Short-term notes XXX Inventory XXX Taxes payable XXX Total Current Assets XXX Total Current Liabilities XXX Fixed Assets Long-term Liabilities Long-term investments XXX Mortgage XXX Land XXX Other long-term liabilities XXX Buildings XXX Total Long-Term Liabilities XXX (less accumulated depreciation) (XXX) Plant and equipment XXX Total Liabilities XXX (less accumulated depreciation) (XXX) Furniture and fixtures XXX SHAREHOLDERS' EQUITY (less accumulated depreciation) XXX Capital stock XXX Total Net Fixed Assets XXX Retained earnings XXX Total Shareholders' Equity XXX TOTAL ASSETS XXX TOTAL LIABILITIES & EQUITY XXX 19  Balance Sheet ASSETS LIABILITIES Current Assets Current Liabilities Cash XXX Accounts payable XXX Accounts receivable XXX Short-term notes XXX Inventory XXX Taxes payable XXX Total Current Assets XXX Total Current Liabilities XXX Fixed Assets Long-term Liabilities Long-term investments XXX Mortgage XXX Land XXX Other long-term liabilities XXX Buildings XXX Total Long-Term Liabilities XXX (less accumulated depreciation) (XXX) Plant and equipment XXX Total Liabilities XXX (less accumulated depreciation) (XXX) Furniture and fixtures XXX SHAREHOLDERS' EQUITY (less accumulated depreciation) XXX Capital stock XXX Total Net Fixed Assets XXX Retained earnings XXX Total Shareholders' Equity XXX TOTAL ASSETS XXX TOTAL LIABILITIES & EQUITY XXX 20  Balance Sheet ASSETS LIABILITIES Current Assets Current Liabilities Cash XXX Accounts payable XXX Accounts receivable XXX Short-term notes XXX Inventory XXX Taxes payable XXX Total Current Assets XXX Total Current Liabilities XXX Fixed Assets Long-term Liabilities Long-term investments XXX Mortgage XXX Land XXX Other long-term liabilities XXX Buildings XXX Total Long-Term Liabilities XXX (less accumulated depreciation) (XXX) Plant and equipment XXX Total Liabilities XXX (less accumulated depreciation) (XXX) Furniture and fixtures XXX SHAREHOLDERS' EQUITY (less accumulated depreciation) XXX Capital stock XXX Total Net Fixed Assets XXX Retained earnings XXX Total Shareholders' Equity XXX TOTAL ASSETS XXX TOTAL LIABILITIES & EQUITY XXX 21  Balance Sheet ASSETS LIABILITIES Current Assets Current Liabilities Cash XXX Accounts payable XXX Accounts receivable XXX Short-term notes XXX Inventory XXX Taxes payable XXX Total Current Assets XXX Total Current Liabilities XXX Fixed Assets Long-term Liabilities Long-term investments XXX Mortgage XXX Land XXX Other long-term liabilities XXX Buildings XXX Total Long-Term Liabilities XXX (less accumulated depreciation) (XXX) Plant and equipment XXX Total Liabilities XXX (less accumulated depreciation) (XXX) Furniture and fixtures XXX SHAREHOLDERS' EQUITY (less accumulated depreciation) XXX Capital stock XXX Total Net Fixed Assets XXX Retained earnings XXX Total Shareholders' Equity XXX TOTAL ASSETS XXX TOTAL LIABILITIES & EQUITY XXX 22  Balance Sheet ASSETS LIABILITIES Current Assets Current Liabilities Cash XXX Accounts payable XXX Accounts receivable XXX Short-term notes XXX Inventory XXX Taxes payable XXX Total Current Assets XXX Total Current Liabilities XXX Fixed Assets Long-term Liabilities Long-term investments XXX Mortgage XXX Land XXX Other long-term liabilities XXX Buildings XXX Total Long-Term Liabilities XXX (less accumulated depreciation) (XXX) Plant and equipment XXX Total Liabilities XXX (less accumulated depreciation) (XXX) Furniture and fixtures XXX SHAREHOLDERS' EQUITY (less accumulated depreciation) XXX Capital stock XXX Total Net Fixed Assets XXX Retained earnings XXX Total Shareholders' Equity XXX TOTAL ASSETS XXX TOTAL LIABILITIES & EQUITY XXX 23 Summarizes the changes in a firm’s cash position for a specified period of time. It shows how a firm receives and uses cash from three main activities: Operating activities Investing activities Financing activities Can only be prepared after the Income Statement and Balance Sheet. See example on page 284 of your textbook – Table 8.2 24  T-Account Debit side Credit side (left) (right) The information in the Annual Report is the sum of all the transactions recorded during bookkeeping in a fiscal year. “The double-entry bookkeeping system” Every recorded economic event has two aspects which offset (or balance) each other. For each recorded transaction at least 2 accounts are used Every transaction that is recorded consists of at least one debit and one credit record - and the total amount of debits must equal the total amount of credits. 25 The double-entry bookkeeping system Income Statement Income/Sales/Revenue Expenses Debit side Credit side Debit side Credit side - + + - Balance Sheet Assets Liabilities or Equity Debit side Credit side Debit side Credit side + - - + 26 An example: On 21 September 2024, the Lannister Bakery sold 100 cupcakes at 5 SEK each. All customers paid using cash. Sales Cash 21/9 Cash 500 21/9 Sales 500 27 Shows relationships between items in financial statements. 4 basic ratio analyses Net income Profitability Profit Margin = Net Sales Total Current Assets Liquidity Current Ratio = Total Current Liabilities Revenue Efficiency Asset Turnover = Assets Total Liabilities Stability Debt to Equity = Total Equity Note! These 4 ratios are just a few of the many ratios used for financial analysis 28  Thank you for coming to class! ☺ Now, go have a good rest of the day. 29 L5 - FINDING AND MANAGING RESOURCES Jonas Dahlqvist (2024) TODAY’S LEARNING OBJECTIVES 1. To understand the different types of resources in organizations; 2. To identify attributes of resources that lead to sustainable competitive advantage; 3. To understand the process of managing resources; 4. To be able to describe how resources can be accumulated, bundled and used in a firm. LINKING PRODUCTS AND RESOURCES ”For the firm, resources and products are two sides of the same coin. Most products require the services of several resources, and most resources can be used in several products. By specifying the size of the firm’s activity in different product markets, it is possible to infer the minimum necessary resource commitments. Conversely, by specifying a resource profile for a firm, it is possible to find the optimal product-market activities.” Wernerfelt (1984)   POINT OF DEPARTURE… Resources Customer value The venture Cost Revenue To be viable, a business needs bidirectional flows upstream and downstream. In a way, opportunity is the connection between resources and demand. DEFINITION OF RESOURCES Resources are anything that the firm holds and that can be used to produce value for the firm (to identify and exploit opportunities). TYPES OF RESOURCES: TANGIBLE - resources you can “touch”. INTANGIBLE – resources you can’t touch (e.g. reputation, organizational culture & processes, R&D capabilities, firm attributes, knowledge, etc).  EXAMPLES Tangible Intangible Ubers network of drivers IKEA reputation for customer service Both types of resources – tangible and intangible – can be difficult to imitate by competitors. The reason is that it takes time to build and retain resources. RESOURCES FOR P R O F I T A firm must have a sufficient resources to enable its business model to work. PHYSICAL – premises, equipment REPUTATIONAL – brand, personal reputation ORGANIZATIONAL – routines, processes, culture FINANCIAL – money INTELLECTUAL (Human) – owned by individuals (for example, expertise and capabilities of employees) TECHNOLOGICAL – process or product PHYSICAL RESOURCES OF AN ORGANIZATION Tangible property that the firm uses in production and administration Examples: Premises, equipment, location, natural resources, security systems Generally, not rare and not hard to buy. But they can be… REPUTATIONAL RESOURCES Perceptions of the company held by people in the firm’s environment Available on 2 levels: ØProduct level – Brand loyalty ØCorporate level – Global image Long-lived – if maintained ORGANIZATIONAL RESOURCES Structure – how we organize Routines – how we do things Systems Formal reporting system Decision-making system Learning FINANCIAL RESOURCES Money assets and/or the ability to get them if needed Examples: Borrowing capacity, ability to raise new equity, amount of cash generated by internal operations Money has only one job: to store value until it can be converted to other resources INTELLECTUAL (HUMAN) CAPITAL Knowledge Training Experience - Entrepreneurial experience - Relevant industry experience Social relations - Social and professional contacts It can walk out the door! TECHNOLOGICAL RESOURCES The techniques, skills, methods, and processes used in the production or the knowledge about them. Intellectual property (patent, copyright) Technology is embedded in: - Processes - Equipment - Software THE MOTHER OF INVENTION… Lack of cash will: Force you to get more of it from your customers by refining your idea. It will drive you to enter in new and productive partnerships with people whose slack resources you put to valuable new use. It forces you to go out and try to make a sale, which is a learning opportunity for whether you have a business or not. BOOTSTRAPPING! BOOTSTRAPPING PRINCIPLES Don’t buy what you can rent Don’t rent what you can borrow Don’t borrow what you can have gifted to you Don’t accept gifts for things that can be found in a dumpster In sum: avoid paying market price for resources. COMPETITIVE ADVANTAGE A firm has competitive advantage when it is implementing a value creating strategy which is not simultaneously being implemented by any current or potential competitors. SUSTAINABLE COMPETITIVE ADVANTAGE A firm has sustainable competitive advantage when it is implementing a value-creating strategy not simultaneously being implemented by any current or potential competitors and when these firms are unable to duplicate the benefits of these strategies. What has this to do with resources? REMEMBER THIS? ”For the firm, resources and products are two sides of the same coin.” Wernerfelt (1984) STRATEGIC RESOURCES Strategic resources are resources used to provide competitive advantage Factor market: Product market: - superior location - Better products or - supply chain services - processes - Market position - culture THE RESOURCE-BASED VIEW (RBV) The resource-based view of competitive advantage (RBV for short) states the competitive advantage comes from having superior strategic resources. If these strategic resources are rare, difficult to copy and depends on complementary resources to be effective, they can be the basis of a sustainable competitive advantage. VRIN FRAMEWORK (BARNEY) Valuable – help conceive of and implement efficient strategy, exploit opportunities & minimize threats Rare – not widely available to competitors, e.g. good location Imperfectly imitable - Hard to copy, duplication not possible at price low enough to leave profits, e.g. unique historical conditions, causal ambiguity and complex social relationships Non-substitutable – there cannot be strategically equivalent substitutes for this resource that are valuable but neither rare nor imperfectly imitable SUMMING UP RBV Resources are heterogeneous and have different characteristics Some resources are rare and hard to acquire Some resources can only be built, not bought, by using time, cash and other resources. Resources are bundled and can therefore be difficult to copy. ENTREPRENEURSHIP AND RBV (1) The resource-based view (RBV) of the firm provides the foundations for understanding how resources can be related to entrepreneurial differences among companies. The essence of resource-based logic rests on the emphasis on bundles of strategic resources (valuable, rare, inimitable, and non- substitutable) at the firm’s disposal as the basis for creating competitive advantage, possibly sustained. ENTREPRENEURSHIP AND RBV (2) Possessing resources does not automatically lead to superior outcomes. Rather, the firm’s resources “must be managed appropriately to produce value”. Owners and managers need to recombine their resources to realize any potential advantage. Entrepreneurial innovation is in fact the “carrying out of new combinations” of resources (Schumpeter, 1934).... AND POINT OF ARRIVAL Resources Resource Utility Cost recombination Revenue Entrepreneurship as creating new ventures through innovative resource recombination MANAGING RESOURCES Selecting resources and managing a portfolio of resources Combining resources to create new “bundles” Using new resource bundles for creating superior value for the customer TIMMONS “FITS AND GAPS” Opportunity Communication Resources Business plan Creativity Leadership “Fits and gaps” The Team FAMOUS LAST WORDS… Entrepreneurial opportunities emerge when certain individuals have insights into the value of resources that others do not have. Entrepreneurial “alertness” and knowledge plus the ability to coordinate resources are viewed can in themselves be viewed as high-level resources. Possessing resources alone does not automagically lead to superior outcomes. They must be managed appropriately to produce value. Owners and managers need to recombine their resources to realize any potential advantage. TODAY’S LEARNING OBJECTIVES 1. To understand the different types of resources in organizations; 2. To identify attributes of resources that lead to sustainable competitive advantage; 3. To understand the process of managing resources; 4. To be able to describe how resources can be accumulated, bundled and used in a firm.  MARKETING FOR NEW VENTURES: FINDING YOUR AUDIENCE AND BUILDING A BRAND Lamiaa Bakry [email protected] Jönköping International Business School (JIBS), Sweden. Prepared for: Entrepreneurship Course Sep 2024 2  LEARNING OBJECTIVES Managing your expectation Today we will… – Explain the three steps (segmenting the market, selecting a target market, and establishing a unique market position) entrepreneurial firms use to identify their customers. – Define a brand and explain why it is important to an entrepreneurial firm’s marketing efforts. – Identify and explain the 4Ps of marketing activities (product, price, promotion, and place) used by entrepreneurial firms. 3  WHAT IS MARKETING Def. of Marketing Who of you thinks MARKETING = ADVERTISING Marketing is more than just advertising; it involves understanding customer needs, creating products that fulfill these needs, and building strong customer relationships. “Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.” Approved by the American Marketing Association in 2017 - see https://www.ama.org/the-definition-of-marketing-what-is-marketing/ 4  WHAT IS MARKETING Marketing Marketing has a large variance of target groups and goals Community and Society Employees – Social Responsibility – Recruitment – Community – Company Culture & Engagement Motivation Other stakeholders that might be Stakeholder in focus relevant: Government, foundations, industry associations, universities, … Customers: Investors – Awareness – Social Responsibility – Education – Community – Engagement Engagement 5  WHAT IS MARKETING Marketing Marketing has a large variance of target groups and goals Community and Society Employees – Social Responsibility – Recruitment – Community – Company Culture & Engagement Motivation Other stakeholders that might be Stakeholder in focus relevant: Government, foundations, industry associations, universities, … Customers: Investors – Awareness – Social Responsibility – Education – Community – Engagement Engagement 6  3 STEPS ENTREPRENEURIAL FIRMS USE TO IDENTIFY THEIR CUSTOMERS. 7  SELECTING A MARKET AND ESTABLISHING A POSITION Three steps of identifying and selecting customers Important Question that all Start-ups must ask: Who are our customers and how will we appeal to them and reach them out? What groups of customers in my SEGMENTING THE market are similar enough that the MARKET same product or service will apeal to all of them? Which specific group of SELECTING A customers have I decided to TARGET target? MARKET What position will my firm occupy in POSITIONING the minds of my customers (and STRATEGY potential customers) that will differentiate it from all of my competitors? ESSENCE Copyright © 2019 Pearson Education, Ltd. All Rights Reserved. 9  SELECTING A MARKET AND ESTABLISHING A POSITION Step 1: Market Segmentation Segmenting the Market – Involves studying a firm’s industry and determining the different target markets (customer types) in that industry. – Markets can be segmented in a number of different ways, including: Segmenting the Market – Geography (city, state, country). – Demographic variables (age, gender, family size, income). – Psychographic variables (personality, lifestyle, values). – Behavioral variables (benefits sought, product usage, brand loyalty). – Product type (varies by product). Copyright © 2019 Pearson Education, Ltd. All Rights Reserved. 10  SELECTING A MARKET AND ESTABLISHING A POSITION Step 1: Market Segmentation Example The computer industry can be segmented in two different ways By product: handheld computers, tablet computers, laptops, PCs, workstations, mini- computers, super-computers, etc By customer served: Individuals, businesses, schools, governments, etc Spotify: Segment its market based on users' music preferences, listening habits, and geographical locations. They further segmented into categories like free users, premium subscribers, and student discounts. NOTICE THAT: The Segments should be distinct enough so that its members can be easily clustered and identified within these segments. Differences within the segment should be minimal compared to differences across segments. Copyright © 2019 Pearson Education, Ltd. All Rights Reserved. 11  SELECTING A MARKET AND ESTABLISHING A POSITION Step 2: Selecting a Target Market – Once a firm has segmented the market, a target market must be chosen. to define and reach those customers! – The market must be sufficiently attractive and the firm must have the capability to serve it. – By focusing on a clearly defined market, a firm can become an expert in that market and then be able to provide customers a high level of service. – You could start by focusing on a niche market: a place within a market segment that represents a narrow group of customer Copyright © 2019 Pearson Education, Ltd. All Rights Reserved. 12  SELECTING A MARKET AND ESTABLISHING A POSITION Step 2: Selecting a Target Market Example: Tesla Instead of targeting all car buyers, Tesla initially focused on Niche Market environmentally conscious, high-income consumers who value innovation and luxury. Copyright © 2019 Pearson Education, Ltd. All Rights Reserved. 13  SELECTING A MARKET AND ESTABLISHING A POSITION Step 3: Establishing a Unique Position – After selecting a target market, the firm’s next step is to establish a “position” within the market that differentiates it from its rivals. – A “position” is the part of a market that the firm is claiming as its own. (Tesla being positioned as high-tech environmental-friendly car company) – A firm establishes a unique position in its customers’ minds by drawing attention to two or three of the product’s attributes. – After a company has its position and primary points of differentiation, a helpful technique is to develop a product attribute map. “the differentiation of the product itself” – A product attribute map illustrates a firm’s positioning strategy relative to its rivals. Copyright © 2019 Pearson Education, Ltd. All Rights Reserved. 14  SELECTING A MARKET AND ESTABLISHING A POSITION Step 3: Establishing a Unique Position Example Top Right: High Price, High Performance (e.g., Apple iPhone, Samsung Galaxy S) Top Left: Low Price, High Performance (e.g., OnePlus) Bottom Right: High Price, Low Performance (less common in the smartphone market) Bottom Left: Low Price, Low Performance (e.g., Nokia Basic Models) Copyright © 2019 Pearson Education, Ltd. All Rights Reserved. 15  SELECTING A MARKET AND ESTABLISHING A POSITION Exercise: How New Venture Do Segmentation, Targeting, and Positioning Let’s suppose you want to open a pizzeria… (10 mins) https://padlet.com/lamiamahmoud/exercise- apply-the-three-steps-segmentation-targeting- positi-k2wbs2cudodr5ddm Copyright © 2019 Pearson Education, Ltd. All Rights Reserved. 16  BRANDING 17  BRANDING Def. of Brand Post-it Google Photoshop Zoom Chapstick Tupperware Copyright © 2019 Pearson Education, Ltd. All Rights Reserved. 18  BRANDING Def. of Brand A brand is the set of attributes— positive or negative— that people associate with a company (e.g., PizzaFly is an environmentally responsible company that is convenient) These attributes can be positive, such as trustworthy, innovative, dependable, or easy to deal with. Or they can be negative, such as unreliable, arrogant, or difficult to deal with. The customer loyalty a company creates through its brand is one of its most valuable assets. Brand Management Some companies monitor the integrity of their brands through a program called “brand management.” to protect their image and value in customers’ minds. Source: https://www.cnbc.com/2020/02/26/apple-wont-let-bad-guys-use-iphones-inmovies- says-knives-out-director.html Copyright © 2019 Pearson Education, Ltd. All Rights Reserved. 19  BRANDING The Power of Branding Power of a Strong Brand – Ultimately, a strong brand can be a very powerful asset for a firm. – Over 50% of consumers say that a known and trusted brand is a reason to buy a product. – A brand allows a company to charge a price for its products that is consistent with its image. – A successful brand can increase the market value of a company by 50% to 75%. Copyright © 2019 Pearson Education, Ltd. All Rights Reserved. 20  BRANDING How to establish a brand? – On a philosophical level, a firm must have meaning in its customers’ lives. It must create value— something for which customers are willing to pay. – On a more practical level, brands are built through a number of techniques, including advertising, public relations, sponsorships, support of social causes, social media, and good performance. – A firm’s name, logo, tagline, website design, Facebook page, Instagram account, and even its letterhead are part of its brand. Example: ProPizz isn't just about delivering pizzas. It's about providing busy professionals with a nutritious meal that complements their fast-paced lifestyle. 1. Social Media: – Video Ads – Challenges – Behind-the-Scenes – Testimonials 2. PR & Events: – Press Release – Networking Nights – Launch 3. Loyalty programs: – Loyalty Cards: – Lunch Specials Copyright © 2019 Pearson Education, Ltd. All Rights Reserved. 21 22  Marketing Mix (4Ps) 23  THE MARKETING MIX (4Ps) What are the 4Ps? A firm’s marketing mix is the set of controllable, tactical marketing tools that it uses to produce the response it wants in the target market. Product Price Marketing Mix Place / Promotion Distribution Copyright © 2019 Pearson Education, Ltd. All Rights Reserved. 24  THE MARKETING MIX (4Ps) Product PRODUCT – Is the good or service a firm offers to its target market. – The most important attribute of a product is that it adds value in the mind of its target customers. – An important distinction should be made between a firm’s core product and the actual product. – The core product is the product itself; for example: the core product is the Iphone. – The actual product is the product plus all the attributes that come with it; for example: the iPhone hardware + software (the iOS). – It is the collection of benefits that the customer ultimately buys. Copyright © 2019 Pearson Education, Ltd. All Rights Reserved. 25  THE MARKETING MIX (4Ps) Product PRODUCT – A common challenge is when firms want to market (or promote) a new product. – All firms face the challenge that they are unknown and they have to convince the first customers to buy their products. – Some start-ups meet this challenge by using reference accounts (e.g., rely on an influencer’s review, testimonials from family and friends who tried the products). – A reference account is an early user of a firm’s product who is willing to give a testimonial (review) regarding his or her experience with the product. Copyright © 2019 Pearson Education, Ltd. All Rights Reserved. 26  THE MARKETING MIX (4Ps) Price PRICE – Price is the amount of money consumers pay to buy a product. – The price a company charges for its products sends an important message to its target market. *signaling about the positioning* – AKA Price/quality attribution: customers naturally assume that higher/priced products also are of better quality – For example, premium pizza vs. fast food pizza – This position in the market suggests a premium price that the pizzeria can charge. Copyright © 2019 Pearson Education, Ltd. All Rights Reserved. 27  THE MARKETING MIX (4Ps) Price Two Methods for Setting the Price of a Product Cost-Based Pricing The list price is determined by adding a markup percentage to a product’s cost. Product Cost Price Value Customers Value-Based Pricing The list price is determined by estimating what consumers are willing to pay for a product Customers Value Price Cost Product Copyright © 2019 Pearson Education, Ltd. All Rights Reserved. 28  THE MARKETING MIX (4Ps) Promotion PROMOTION – Refers to the activities the firm takes to communicate the merits of its product to its target market. – There are several common activities that entrepreneurs use to promote their products and services. Which type of promotion do you think is suitable for new ventures and why? (5min) https://padlet.com/lamiamahmoud/which-type-of-promotion-do-you- think-is-suitable-for-new-ven-63a46ip5iw6sfn3d Copyright © 2019 Pearson Education, Ltd. All Rights Reserved. 29  THE MARKETING MIX (4Ps) Promotion PROMOTION – Refers to the activities the firm takes to communicate the merits of its product to its target market. – There are several common activities that entrepreneurs use to promote their products and services. Advertising: Paying to Direct Marketing: reaching Personal selling: One-on- one broadcast a meassage about out directly to customers interaction between the a product or service (email, sms…) salesperson and customers. Sales Promotion: Short-term Digital Marketing: Social Sponsorship: sponsoring incentives designed to stimulate media, SEO, content events, athletes, … to immediate purchase marketing, pay-per-click… increase visibility PR: Creating a positive image Word of Mouth: satisfied Trade Promotions: incentives to for a brand or product without customers sharing their retailers or distributors to stock, directly paying for it experiences display… Copyright © 2019 Pearson Education, Ltd. All Rights Reserved. 30  THE MARKETING MIX (4Ps) Promotion PROMOTION Advertising… Pluses Raise customer awareness of a product. Explain a product’s comparative features and benefits. Create associations between a product and a certain lifestyle. Minuses Low credibility (because as a customer you haven’t used the product yet). The possibility that a high percentage of people who see the ad will not be interested. Message clutter (meaning that after hearing or reading so many ads, people simply tune out). Costly compared to other forms of promotions. Copyright © 2019 Pearson Education, Ltd. All Rights Reserved. 31  THE MARKETING MIX (4Ps) Promotion PROMOTION Public Relations… One of the most cost-effective ways to increase the awareness of the products of a company is through public relations. Public relations refer to efforts to establish and maintain a company’s image with the public. The major difference between public relations and advertising is that public relations is not paid for—directly. Social Media… Consists primarily of blogging and connecting with customers and others through social networking sites such as Facebook, Twitter, Instagram, or Snapchat. Blogging: The idea behind blogs is that they familiarize people with a business and help build an emotional bond between a business and its customers. Businesses establish a presence on Facebook, Twitter, Instagram and Pinterest to build a community around their products and services. Copyright © 2019 Pearson Education, Ltd. All Rights Reserved. 32  THE MARKETING MIX (4Ps) Place PLACE Or distribution Encompasses all the activities that move a firm’s product from its place of origin to the consumer. The first choice a firm has to make regarding distribution is whether to sell its products directly to consumers or through intermediaries (such as wholesalers and retailers). Within most industries, both choices are available, so the decision typically depends on how a firm believes its target market wants to buy its product. Copyright © 2019 Pearson Education, Ltd. All Rights Reserved. 33  MARKETING IN NEW VENTURE 34  MARKETING IN NEW VENTURE Just Remember Limited resources. Do not follow textbooks, theory or established models (e.g., 4Ps). Do not behave in the rational, sequential manner. The entrepreneur’s charisma, values, etc., can also be marketing tools. The entrepreneur sometimes act as the brand ambassador Copyright © 2019 Pearson Education, Ltd. All Rights Reserved. 35 THANK YOU JESG10 – Entrepreneurship Lecture 8: Financing and Funding Imran M. Ilyas, PhD Jönköping International Business School [email protected] 1  Important in financing start-up and growth! Funding needs How much money? Funding sources Where and from whom to obtain the money? Funding timing When to go for the money? Funding pitch How to gain funding? 2 Why do especially start-ups need funding? 3 Source: https://www.f rac.tl/work/m arketing- research/why- startups-fail- study/ 4  Cash flow challenges External reasons Cashflow management – Suppliers introduce shorter payment – Speeding cash flow terms – Reducing costs – Bank restrict short- term credits – Raising prices – depends on – Customers delay payments consumer preferences and switching costs! Internal reasons Too much cash – bad for the – Private withdrawals too high business? – Lack of pre-financing for tall orders – Urgent investments Sales are nice. Profits are – Small profit margin together with nices. But you live or die on stagnating turnover cashflow. 5  Financial problems in new and innovative firms New and small firms Innovative firms Liability of smallness High risk of liability of newness Restricted access to capital market because of innovation Limited internal possibilities to spread Limited self-financing power in stages risks of preparing and creating the venture Lack of information Higher sunk costs Higher transaction costs Lengthy product life cycles Little bargaining power 6 Funding Sources 7 Funding sources for start ups Source: Statista data for Europe 2018 https://www.statista.com/statistics/107 2995/distribution-of-startups-europe- by-financing-source/ 8 Funding sources for start ups 9 Source: European Start-up Survey, PwC (2018) Sources of personal financing 10  Sources of Personal Financing Sweat equity Love money – Personal savings, retirement funds, and – Friends and family can be source credit cards. of funds. – represent value of the time and effort – They can consist of outright gifts, that a founder puts into a new firm. loans or investments but often come in the form of forgone or Moon lighting delayed compensation or reduced – The entrepreneur undertakes a second or free rent. job, in addition to his/her Bootstrapping entrepreneurial activity and uses – Use of creativity, ingenuity, and any generated income to support means possible to obtain resources him/herself during needed cash flow. other than borrowing money or – When the venture begins paying well or raising capital from traditional better – the entrepreneur leaves job sources. 11  Bootstrapping The term “bootstrapping“ signifies doing more with less. It is about finding ways of avoiding the need for money through creativity, ingenuity, cost-cutting, or any means necessary. Bootstrapping leads to starting a business with only existing resources and you are “forced” to be creative. Get the startup operational quickly generating sales early, opportunities to make money 12  Bootstrapping can be achieved in various ways – minimizing personal expenses and putting all profits back into business – avoiding unnecessary expenses (e.g., saving furniture, office space costs by working in garage space). – establishing partnerships and sharing expenses with partners – buying items cheaply but prudently through discount outlets – leasing rather than buying – sharing office space or employees with other businesses Source: https://sg.finance.yahoo.com/news/early- photos-life-apple-steve-094900157.html – Personal network to share resources or get resources for free 13 Sources of Equity Funding 14  Business Angels vs Venture Capitalists Business angels are individuals Venture capital firms are limited who invest their personal partnership of money managers capital directly in start-ups. who raise money in funds to invest in startups. Informal capital Private investment Formal capital Own money Invests funds Early-stage funding Portfolio Later-stage funding 15  Going for the big money – Why VCs? But it is important to evaluate VCs: 16  But also consider negative sides of VCs They DEMAND rapid growth Independence Reporting Intrusion Who is in control? Venture Capitalist: “I back my entrepreneurs 1000% until I fire them” 17  Initial Public Offering (IPO) An initial public offering (IPO) or stock market launch is the first sale of stock by a company to the public. Privately held company to publicly traded company Used to raise expansion capital Evaluation process/due diligence 18  Advantages vs disadvantages of Initial Public Offering (IPO) Advantages Disadvantages – Raising new capital with the – Costs and effort for mounting the possibility of later, additional operation offerings – Financial disclosure requirements – Liquidity – ability to convert and scrutiny of operations ownership to cash, potential of harvest for investors and founders – Perceived pressures on achieving short-term results – Visibility – build brand and reputation – Possible loss of control to a majority shareholder 19 Sources of Debt Funding 20  Sources of Debt Financing Single purpose loan – Specific amount of money is borrowed that must be repaid in a fixed amount of time with interest. – For example, loans from banks – Extra costs in the form of interest payments Line of credit – A borrowing cap is established, and Vendor/ trade credit borrowers can use the credit at their – Credit extended to a business by discretion. vendor to allow the business buy its – Lines of credit require periodic interest products and/or services upfront but payments. defer payments until later. 21 Creative Sources of Finances and Funding 22  Crowdfunding Leveraging money from the public (i.e., crowd). https://www.kickstarter.com/ Requires fundraising platforms that allow entrepreneurs to create a profile, list their fund-raising goals and provide an explanation of how the funds will be used. “Crowd” provides funding in exchange for equity, reward, and https://www.seedrs.com/ nothing. Thus, there are three types: Equity based CF, Reward based CF, and donation-based CF. The platform takes a small % of the funds raised. https://www.gofundme.com/ Problems: how to protect your idea? https://www.patreon.com/europe 23  Startup grants Startups could receive funding from different agencies. https://www.finnvera.fi/eng https://fundingtrip.com/f/vinnova-innovativa-startup-step-1 24 What type of funding sources are most appropriate for startups? The code 69 01 62 0 1. Family & friends 2. Own money 3. Bootstrapping 4. Business Angel 5. Crowdfunding 6. Venture capital 7. IPO 8. Bank loan https://www.menti.com/alo4vdvvbgxn 25 It depends! A business with a high risk and uncertain return – Bootstrapping A business with a low risk and predictable return - Debt financing A business with a potentially high return and high risk - Equity financing Aldrich & Ruef (2018) 27 High growth enterprises: Unicorns Unicorns: companies that earn a billion- dollar valuation within 5 years of being launched 28 Source: World Economic Forum, 2019 29 Source: World Economic Forum, 2019 30 Funding Stages 31 Personal savings, Startup grants Bank Loans Adapted from: https://www.ovtt.org/en/guidelines/start-up/ 32 Funding Pitch 33  About pitching Pitching is about selling your ideas “Ideas are everywhere, so why should someone pay attention to yours?” Pitching is one of the core activities of entrepreneurs to communicate their value proposition and business model Slush 100 Pitching Competition 34  Pitch/ elevator pitch Pitch (presentation): generally lasts for 90 seconds/3 min./4 min./5 min./7 min. usually accompanied with a pitch deck: set of slides entrepreneurs use to support their pitch Elevator pitch: shortened version of the pitch without the pitch deck “a concise, carefully planned & well-practiced description about your company that your mother should be able to understand in the time it takes to ride up an elevator” (Pagliarini, 2001) 35  Pitch/elevator pitch – when to use it? You can use it, for example, in the following ways: to attract investors (so that they would want to meet you in private) as a door opener to get meetings with potential customers as a networking tool to recruit team members to validate an idea with key stakeholders to improve the idea 36  How to design the pitch? The pitch/elevator pitch should be about “the audience”, not about you: The formula: We solve [problem] by providing [advantage], to help [target] accomplish [target’s goal]. (Stanford graduate and mentor at 500 startups, Elliot Loh) highlight what is unique & different about your idea you need to be different in order to deserve attention 37 Presentation with Two Communications Channels 38 Toward Pitch-Perfect Communication content (i.e., what you say) Communication content (i.e., what you say) Pitch-perfect A game plan Communication A game plan Communication (i.e., what you style (i.e., how style (i.e., how (i.e., what you want) want) you say it) you say it) 39  Tools & helpful information “How to pitch anything in 15 seconds”: article & Youtube video https://www.forbes.com/sites/car minegallo/2012/07/17/how-to- pitch-anything-in-15- seconds/#2d8fb9911dd9 40  New ventures need money to finance their operations Entrepreneurs could raise required money using various means such as personal funds, crowdfunding, and IPO Key messages Different types of funding could be useful at different stages of new venture Entrepreneurs need to pitch their ideas for new venture in front of potential investors and customers 41 42 Lamiaa Bakry [email protected] Jönköping International Business School (JIBS), Sweden. Prepared for: Entrepreneurship Course Oct 2024  LEARNING OBJECTIVES Managing your expectation Today we will… – Discuss the actions founders can take to establish strong business ethics and ethical culture in their entrepreneurial ventures. – Discuss legal forms of businesses in Sweden. – Understand Intellectual Property (IP) protection and its type. Copyright © 2019 Pearson Education, Ltd. All Rights Reserved. 2  ETHICAL FOUNDATIONS 3  ETHICAL FOUNDATIONS Business Ethics What is Ethics? https://padlet.com/lamiamahmoud/ethical-dilemmas-b2ps51u9om6smbii 4  ETHICAL FOUNDATIONS Business Ethics What is Ethics? The moral principles that governs and guides people’s actions, behavior, or the conducting of an activity (“moral” in this case meaning questions of “right/wrong” or “good/evil”). Usually about shared rules on a social level. https://www.youtube.com/watch?v=hIU38PTtD3k 5  ETHICAL FOUNDATIONS Business Ethics Firms have different goals… Profitability, profits to shareholders, market shares Growth Environmental responsibility Better society Personal goals, lifestyle Innovation 6  ETHICAL FOUNDATIONS Benefits of Ethical Culture Potential Benefits of a Strong Ethical Culture https://www.ted.com/talks/alexander_ wagner_what_really_motivates_people _to_be_honest_in_business?subtitle=en 7  ETHICAL FOUNDATIONS Ethical Misconduct SOME Forms of Ethical misconduct Putting own Lying to ETHICAL TO YOU; NOT TO ME!!!! interests ahead of stakeholders Social groups develop moral rules (ethics) that are different from the organization rest of society. Since most people need to feel that they are doing “the right thing”, Internet abuse Discrimination changing what is believed to be “r i g h t ” is an option to changing your behaviors or priorities Students need to develop moral rules that says it’s OK to collaborate on Safety violations Sexual harrasment individual hand-ins or use chatGPT without mentioning it. Criminals need a moral code that says it is morally acceptable to shoot the Abusive behaviour Stealing relatives of a competitor in order to limit competition. A group of engineers that wants to cheat the emission tests for diesel engines Lying to Misreporting hours must believe it’s “OK” to do so in order to live with themselves. employees worked 8  ETHICAL FOUNDATIONS Ethical Misconduct Why do we break the rules of ethical guidelines? Bad apple Moral blindness: people just do not know the guidelines They know them, but other goals may be easier to reach if you break the rules. Competitive pressure: a major driving force behind unethical behaviour is competition Opportunity pressure: If behaving unethically is more profitable than behaving ethically, the unethical behaviour will prevail? Why? 9  ETHICAL FOUNDATIONS Ethical Misconduct Reasons for Employee’s Misconduct Feeling pressure to do "whatever it takes" to hit business targets. Believing they will be rewarded for their results, regardless of the means Believing the code of conduct is not taken seriously Lack of resources to get the job done without cutting corners Fear of losing their job if they do not meet targets Believing policies or procedures are easy to bypass or override Seeking to bend the rules for personal gain No one feels individually accountable Globalization!! Feeling lack of connection to the new market https://www.youtube.com/watch?v=TQQXstNh45g 10  ETHICAL FOUNDATIONS Ethical Misconduct Managerial Approaches to Ethical Conduct/Misconduct Selfish, seeking profitability at any cost, perceiving Immoral legal standards are barriers, etc. Well-intentioned but selfish, profitability, what can be Amoral done legally, compliance with law, etc. Good profitability within ethical boundaries, law is Moral minimal ethical behavior, etc. 11  ETHICAL FOUNDATIONS Ethical Misconduct Managing the Ethics Ethical misconduct is accelerated by competition: between firms and between employees. To maintain ethical behaviour within the firm, the entrepreneur has to work with business ethics actively and long-term. Create core values Leading by example is the starting point. Hire employees that fit the ethical values Resist the pressure to cut ethical corners Non-Disclosure agreement (NDA) 12 13  LEGAL CONSIDERATIONS 14  LEGAL CONSIDERATIONS Understanding Legal Forms Two important dimensions of legal form Define the relationship between the legal entity and its environment Define the relationship between the owners and between the owners and the firm A legal entity is something that can: Enter agreements Own things Be taxed Be liable 15  LEGAL CONSIDERATIONS Understanding Legal Forms Issues to Consider in Choosing a Legal Form of Business Ownership The number and type of owners and investors involved The cost of setting up and maintaining the legal form Control: How much decision-making power do you want to maintain? The extent to which personal assets can be shielded from the liabilities of the business (Degree of separation between the business and its owners) Liability: How much personal liability you're willing to take on Tax considerations Taxation: Differences in how each structure is taxed. Future Growth: Scalability of the legal structure. 16  LEGAL CONSIDERATIONS Forms of Business Organizations and their Legal Forms Forms of Business Organizations Sole Proprietorship Corporation General Partnership Limited Liability Company 17  LEGAL CONSIDERATIONS Forms of Business Organizations and their Legal Forms Forms of Business Organizations Sole Proprietorship / Sole Trader Enskild näringsidkare The simplest legal form of business. Involves only one person, and the person and the business are one and the same => Unlimited responsibility for the firm Not possible to invest in the firm Simple and cheap: you need a tax permit (“f- skatt”) and you report your income on your income tax return Income declaration is declared on private declaration 18  LEGAL CONSIDERATIONS Forms of Business Organizations and their Legal Forms Forms of Business Organizations Sole Proprietorship / Sole Trader Capital is not easy to obtain and cannot SETTING UP Easy to start, little capital is needed, few be obtained from investors or shares formalities, low administration costs Often small, and any losses borne by the PROFITS Do not have to be shared with others sole trader, complicated to calculate the private profits The burden is not shared with others, CONTROL Easy to to keep overall and total usually long hours and little chance of control, and be your own boss holidays Might have to be made without any DECISIONS Can be made quickly assistance 19  LEGAL CONSIDERATIONS Forms of Business Organizations and their Legal Forms Forms of Business Organizations Partnership “Handelsbolag” (HB) A little complicated but still a simple legal form for businesses. A partnership is a separate legal entity, but still with unlimited liability for the partners. Involves at least two people (or possibly more) general partners Separate legal entity => owners can invest in the firm with money that is not taxed. Each partner declares their own income. The general partners can be physical or legal (two persons or two firms can enter a general partnership). Taxes can be complicated. 20  LEGAL CONSIDERATIONS Forms of Business Organizations and their Legal Forms Forms of Business Organizations Partnership Personal responsibility for the firm’s Same pros as sole proprietorship debts Joint owner responsbility Liquidity surplus can be invested freely Complicated to caluculate the private profits 21  LEGAL CONSIDERATIONS Forms of Business Organizations and their Legal Forms Forms of Business Organizations Limited Partnership “Kommanditbolag” (KB) Like a general partnership but with two different classes of partners: (1) general partners with unlimited liability (Sw: komplementär) (2) Several “silent” partners with limited liability (Sw: kommanditär). Silent partners have no say and no risk. Offers possibilities to limit responsibility for debts. 22  LEGAL CONSIDERATIONS Forms of Business Organizations and their Legal Forms Forms of Business Organizations General Partnership Limited Partnership Feature Handelsbolag (HB) Kommanditbolag (KB) At least one general owner (komplementär) and one limited owner Ownership Structure All partners are general owners (komplementärer). (kommanditdelägare). Unlimited liability for general owners; limited liability for limited Liability Unlimited and pretty equal liability for all partners. owners (up to their investment). General owners manage the business; limited owners do not Management All partners participate in management. participate in management. Profits and losses pass through to partners' personal tax Taxation Profits and losses pass through to partners' personal tax returns. returns. Can be formed informally; a partnership agreement is Formation Must be registered; requires a formal partnership agreement. recommended. Decisions made by general owners; limited owners do not have Decision-Making Collective decision-making among partners. voting rights. Limited owners are typically passive investors, not involved in Involvement of Limited Owners Not applicable; all are involved. daily operations. 23  LEGAL CONSIDERATIONS Forms of Business Organizations and their Legal Forms Forms of Business Organizations Corporations “Aktiebolag” (AB) Examples: Private limited company (Ltd), Public limited company (Plc), Incorporated (Inc). The corporation is a fully independent legal entity. Owners (called shareholders) are liable only to their share of the firm’s capital. Very sharp lines between the wealth of the company and the wealth of its owners (due to the separation of liabilities). Extensive and partly harmonized legislation Democratic decision-making: the owners vote for representation (in the board) according to their shares Demands on accounting and reporting expected yearly (annual Report). Needs a more substantial investment. Initial investment f of 25,000 SEK. 24  LEGAL CONSIDERATIONS Forms of Business Organizations and their Legal Forms Forms of Business Organizations Corporations Limited owner responsibility Initial demand for capital investment (25K) More tax-free benefits Prohibited to loan from firm Easy to calculate private withdrawals Administration requires expertise Sales can generate tax benefits (Has to engage a chartered accountant) and annual reports 25  LEGAL CONSIDERATIONS Forms of Business Organizations and their Legal Forms Who owns a Business Organization? Private Entrepreneur and/or family Venture capitalists, Business angels Share-holders Co-operative – members Foundation Public (community, state) 26  INTELLECTUAL PROPERTY 27  INTELLECTUAL PROPERTY IP Protection Intellectual property can be an asset Assets can be the source of competitive advantage To stop others from copying or using designs or methods that you developed, using your time and your money, you want to protect them just as you want with physical assets. When to protect? Is your IP an asset that can give you a competitive advantage? => PROTECT! OR Does your IP have a market value so that you can sell it? => PROTECT! 28  INTELLECTUAL PROPERTY IP Protection Forms of IP Patent (incl. design patents) For these: Get help from a Trademark SPECIALIST !!! Copyright Trade secrets (very Hush-Hush…) Non-disclosure agreements (commonly known as an “NDA”) => Be proactive. 29  INTELLECTUAL PROPERTY IP Protection_Patents Patents A patent is NOT a right to do something. It is a right to STOP OTHERS from doing it. Applying for a patent means that the secrets of your invention becomes public information. But once the patent is granted, others can’t use it. Requirements: useful, novel, not obvious Different forms Utility: new inventions of processes, machinery, product, combinations. Design patents: new / original / ornamental designs for products Business methods: not patentable in Europe, but in US Plant patents: possible in some countries Patenting could take long time and might be expensive. Original design by Marie Lundgren- Carlgren and Kina Strandberg Registered for a Design patent (Sw:Mönsterskydd) 30  INTELLECTUAL PROPERTY IP Protection_Trademark Trademark Word, symbol, name, or device that identifies the source or origin of products/services and distinguishes them from others Your trade name can be protected Other firms cannot have similar names You do not have to register your trademark – but it helps to prove that you have a claim over it. => You just claim it’s a trademark. ® => It’s a Registered trademark (in the US) © => Copyright (e.g. Nike slogan: “Just do it©” 31  INTELLECTUAL PROPERTY IP Protection_Copyright Copyright Author of copyrighted work (tangible: software, text, recordings, images, films, music, art, etc.) has the legal right to determine use of this work and to obtain economic benefits The “legal entity” that created it owns it The ownership can be traded Disney! The period allowed for copyrights seems to be extended every time the Disney character “Mickey Mouse” is threatened to become public domain… IDEAS CANNOT BE COPYRIGHTED, BUT THE EXPRESSION OF AN IDEA IS COPYRIGHTABLE! AVOID INADVERTENT DISCLOSURE – MIGHT FORFEIT YOUR CLAIM TO ITS EXCLUSIVE RIGHTS (E.G., WHEN YOU APPLY FOR PATENTS LATER) 32  INTELLECTUAL PROPERTY IP Protection_Trade Secrets Trade secrets Knowledge restricted to firm – CONFIDENTIAL Developed at great costs, time, efforts Cannot be duplicated or discovered”…. need-to-know” basis A patent means disclosing your invention publicly for everybody to see. Alternative: keep it to yourself. Also, make sure that everybody you tell it to keep it to their selves! USE NDA Also, IP that could be patented needs to be kept secret until filing. If you disclose your invention to the public before filing, you forfeit the right to a patent.. USE NDA 33 THANK YOU