IT364 - Midterm Summary PDF

Week 2: Entrepreneurs: The Driving Force Behind Small Business IT364 IT Entrepreneurship & Innovation Moussa Academy 00201007153601 WWW.MOUSSAACADEMY.COM Contents Contents....................................................................................................................................

Week 2: Entrepreneurs: The Driving Force Behind Small Business IT364 IT Entrepreneurship & Innovation Moussa Academy 00201007153601 WWW.MOUSSAACADEMY.COM Contents Contents................................................................................................................................................. 1 I. What is An Entrepreneur?.............................................................................................................. 2 II. How to Spot Entrepreneurial Opportunities?................................................................................. 3 III. Benefits of Owning a Small Business......................................................................................... 3 IV. The Potential Drawbacks of Entrepreneurship........................................................................... 4 V. Why the Boom: The Fuel Feeding the Entrepreneurial Fire.......................................................... 5 VI. Contribution of Small Business.................................................................................................. 8 VII. Putting Failure into Perspective.................................................................................................. 8 VIII. Definitions................................................................................................................................... 9 1|Page www.MoussaAcademy.com 00201007153601 I. What is An Entrepreneur? What is An Entrepreneur? 1. Is a person who establishes new business 2. In a situation full of risk and uncertainty ‫ﻓﻲ وﺿﻊ ﻣﻠﻲء ﺑﺎﻟﻤﺨﺎطﺮ واﻟﻐﻤﻮض واﻟﺸﻚ ﻓﻲ ﻗﺪرﺗﮫ ﻋﻠﻰ اﻟﻨﺠﺎح‬ 3. To achieve profit and growth 4. By identifying opportunities and assembling resources ‫ﻣﻦ ﺧﻼل ﺗﺤﺪﯾﺪ اﻟﻔﺮص وﺗﺠﻤﯿﻊ اﻟﻤﻮارد‬ 5. To benefit from these opportunities What are Serial Entrepreneurs? Characteristics of an Entrepreneur Those who create and run more than one business at same time. Q: WHAT CHARACTERISTICS DO ENTREPRENEURS HAVE? 1. Tenacity ‫اﻟﻌﻧﺎد واﻹﺻرار ﻋﻠﻰ اﻟﻧﺟﺎح‬ 2. Tolerance of ambiguity ‫درﺟﺔ ﻋﺎﻟﯾﺔ ﻋﻠﻰ ﺗﺣﻣل اﻟﻐﻣوض وﻋدم اﻟﺧوف ﻣﻧﮭﺎ وﻣن اﻟﻣﺳﺗﻘﺑل‬ 3. Desire to take initiative ‫اﻟرﻏﺑﺔ ﻓﻲ أﺧذ زﻣﺎم اﻟﻣﺑﺎدرة و أن ﯾﻛون ھو اول ﻣن ﯾﺑدأ‬ 4. Competitiveness ‫ﻋﻧده روح اﻟﻣﻧﺎﻓﺳﺔ‬ 5. Future oriented ‫ﻣطﻠﻊ و ﻧﺎظر اﻟﻲ اﻟﻣﺳﺗﻘﺑل‬ 6. Perseverance Most important 6 characteristics Does not give up even in the time of failure. ‫اﻟﻣﺛﺎﺑرة وﻋدم اﻻﺳﺗﺳﻼم‬ 7. Committed ‫ﻣﻠﺗزم‬ 8. Desire for immediate feedback ‫اﻟرﻏﺑﺔ ﻓﻲ اﻟﺣﺻول ﻋﻠﻰ ردود ﻓﻌل ﻓورﯾﺔ ﺣﺗﻰ ﯾﺳﺗطﯾﻊ اﺣداث ﺗﻐﯾﯾر إﯾﺟﺎﺑﻲ ﻟﺗﺣﺳﯾن اﻟﻣﻧﺗﺞ واﻟﺧدﻣﺎت اﻟذي ﯾﻘدﻣﮭﺎ‬ 9. Flexible 10. Preferers moderate risk 11. Self-Reliance 12. Energetic NOTE: Entrepreneurship is a skill that can be learned by anyone with a diversity ‫ ﺗﻨﻮع‬of characteristics. 13. Skillful at organization 14. Confidence. 15. Values achievement over money 2|Page www.MoussaAcademy.com 00201007153601 II. How to Spot Entrepreneurial Opportunities? Creativity & Creativity Innovation It is the ability of developing ideas & new ways to look at problems. (Thinking) Innovation Techniques It is the ability of applying creative solutions to these problems and opportunities. (Doing) Q: WHAT ARE THE TECHNIQUES OF IDENTIFYING BUSINESS OPPORTUNITIES? TLP MRN 1. Take different approaches to a market 2. Look for creative ways to use existing resources 3. Put a new twist on an old idea. ‫ﺿﻊ ﻟﻣﺳﺔ ﺟدﯾدة ﻋﻠﻰ ﻓﻛرة ﻗدﯾﻣﺔ ﻣوﺟودة ﺑﺎﻟﻔﻌل‬ 4. Monitor trends 5. Realize that all face the same problems ‫ﺗﺎﺑﻊ ﻛل ﻣﺎ ھو ﺟدﯾد واﻻﺗﺟﺎھﺎت اﻟﺗﺎي ﯾﺄﺧذھﺎ اﻟﻌﻣﻼء ﻓﻲ ﻣﺟﺎ ٍل ﻣﺎ‬ ‫ﻛل اﻟﻧﺎس ﺗواﺟﮫ ﻧﻔس ﻣﺷﺎﻛﻠك‬ 6. Notice what is missing in the market III. Benefits of Owning a Small Business Benefits Q: WHAT ARE THE BENEFITS OF OWNING A SMALL BUSINESS? CMC RRD (The 6 Opportunity O’s) 1. 2. 3. 4. Control your destiny. Make a difference. Contribute to society. Reach full potential. 5. Reap profits. 6. Do what you enjoy. 3|Page ‫اﻟوﺻول إﻟﻰ أﻓﺿل ﺻورة ﻟﻧﻔﺳك وﺗﺣﻘﯾﻖ ﻣﺎ ﻟم ﺗﻛن ﺗﺗوﻗﻊ ان ﺗﺣﻘﻘﮫ‬ www.MoussaAcademy.com 00201007153601 IV. The Potential Drawbacks of Entrepreneurship Drawbacks Q: WHAT ARE THE DRAWBACKS OF BECOMING AN ENTREPRENEUR? URL LH CD 1. Uncertainty of income ‫اﻟﺷك ﻓﻲ ﻧﺟﺎح اﻟﻔﻛرة وﻛﺳب اﻟدﺧل ﻣﻧﮭﺎ‬ 2. Risk of losing whole capital ‫اﻟﻣﺧﺎطرة ﺑرأس ﻣﺎﻟك‬ 3. Long working hours. 4. Low quality of life at the beginning. 5. High levels of stress. 6. Complete responsibility. 7. Discouragement ‫اﻻﺣﺑﺎط‬ Business Failures Q: WHAT ARE THE TOP 5 REASONS BUSINESS FAIL? BIL PL 1. Bad Location 2. Insufficient capital (At least 6 months!) 3. Lack of experience 4. Poor inventory control 5. Lack of planning. 4|Page www.MoussaAcademy.com 00201007153601 V. Why the Boom: The Fuel Feeding the Entrepreneurial Fire Q: WHAT ARE THE MOST IMPORTANT FACTORS THAT LED TO THIS AGE OF The Factors of ENTREPRENEURSHIP? Entrepreneurship Age 1. Shift to service economy ‫اﻻھﺗﻣﺎم ﺑﺗﻘدﯾم اﻟﺧدﻣﺎت وﻟﯾس اﻟﻣﻧﺗﺟﺎت‬ 2. Entrepreneurs as heroes 3. Outsourcing ‫اﻻﺳﺗﻌﺎﻧﺔ ﺑﻣﺻﺎدر اﻟﻌﻣل ﺧﺎرﺟﯾﺔ ﻹﻛﻣﺎل ﻋﻣل ﻣﺎ ﻟك ﺑﺛﻣن اﻗل‬ 4. E-commerce & World Wide Web 5. Technology 6. Demographic & Economy Factors 5|Page www.MoussaAcademy.com 00201007153601 VI. The Cultural Diversity of Entrepreneurship Q: WHAT ARE THE DIFFERENT TYPES OF ENTREPRENEURS? The Cultural of Entrepreneurship 1. Women entrepreneurs ‫راﺋدات اﻷﻋﻣﺎل‬ 2. Copreneurs. ‫اﻻزواج‬ 3. Corporate castoffs ‫ﺿﺣﺎﯾﺎ اﻟﺳوق اﻟذي ﺗم ﺗﺳرﯾﺣﮭم ﻣن اﻟﻌﻣل‬ 4. Corporate “Dropouts” ‫اﻟذﯾن ﺗرﻛوا اﻟﻌﻣل او اﻟدراﺳﺔ ﻹﻧﺷﺎء اﻻﻋﻣﺎل اﻟﺧﺎﺻﺔ ﺑﮭم‬ 5. Young entrepreneurs 6. Minority enterprises ‫اﻷﻗﻠﯾﺔ واﻟﺷرﻛﺎت اﻟﻧﺎﺷﺋﺔ اﻟﺻﻐﯾرة‬ 7. Immigrant entrepreneur. ‫اﻟﻣﮭﺎﺟرون ﺑﮭدف رﯾﺎدة اﻷﻋﻣﺎل ﻓﻲ دوﻟﺔ اﺧري‬ 8. Part-Time entrepreneurs 9. Home-Based business owners 10. Family business owners 11. Retired baby boomers ‫ ووﺻﻠوا اﻟﻲ ﺳن اﻟﺗﻘﺎﻋد وﻟﻛن أﺻروا ﻋﻠﻰ اﻛﻣﺎل اﻻﻋﻣﺎل اﻟﺧﺎﺻﺔ ﺑﮭم‬1964‫ و‬1946 ‫اﻟﻣﺗﻘﺎﻋدون اﻟذﯾن وﻟدوا ﻣﺎ ﺑﯾن‬ 6|Page www.MoussaAcademy.com 00201007153601 Q: WHAT ARE THE RULES OF A SUCCESSFUL HOME-BASED BUSINESS? Rules 1. Do your homework. ‫ﻗم ﺑﻛل اﻟﻣﺗطﻠﺑﺎت ﻣﺛل دراﺳﺔ اﻟﺳوق‬ 2. Find out zoning restrictions. ‫اﺳﺗﻌﻠم ﻋن ﻗواﻧﯾن اﻟﻣﻧطﻘﺔ‬ 3. Dress appropriately 4. Create business zones isolated from family. 5. Focus the idea. 6. Discuss rules with family. 7. Select appropriate name. 8. Buy right equipment. 9. Learn to deal with distractions. 10. Phone can be friend or enemy. 11. Be firm with friends and neighbors. 12. Make sure you have insurance. 13. Create no-work time zones. 14. Take advantage of tax breaks. 15. Maximize productivity. 16. Understand circumstances of hiring outside employees. 17. Be prepared if clients come to home. 18. Get post box. 19. Networks of people 20. Be proud. 7|Page www.MoussaAcademy.com 00201007153601 VII. Contribution of Small Business Business that hires less than 100 people. Small Business Small businesses create more job opportunities than big businesses. VIII. Failures Putting Failure into Perspective Entrepreneurs are not paralyzed by the fear of failure ‫ﻻ ﯾﺨﺎﻓﻮن ﻣﻦ وﺟﻮد اﺣﺘﻤﺎﻟﯿﺔ اﻟﻔﺸﻞ‬ Failure is a natural part of the process. Successful entrepreneurs have the ability to fail intelligently. 8|Page www.MoussaAcademy.com 00201007153601 IX. Definitions Entrepreneur Is a person who establishes new business. In a situation full of risk and uncertainty. To achieve profit and growth. By identifying opportunities and assembling resources. To benefit from these opportunities. those who create and run more than one business simultaneously. Serial Entrepreneurs Perseverance Does not give up even in the time of failure. Creativity It is the ability of developing ideas and discovering new ways to look at problems and opportunities. (Thinking) Innovation It is the ability of applying creative solutions to these problems and opportunities. (Doing) Small Business business that hires less than 100 people. 9|Page www.MoussaAcademy.com 00201007153601 Week 3: Strategic Management & the Entrepreneur IT364 IT ENTREPRENEURSHIP & Innovation Moussa Academy 00201007153601 WWW.MOUSSAACADEMY.COM Contents Contents.............................................................................................................................................................. 1 I. Strategic Management & the Entrepreneur............................................................................................... 2 II. Building a Competitive Advantage.............................................................................................................. 2 III. The Strategic Management Process (9 Steps)......................................................................................... 3 1|Page www.MoussaAcademy.com 00201007153601 I. Strategic Management & the Entrepreneur Intellectual Capital The world’s economy has shifted from a base of financial to intellectual capital. Intellectual capital DEFINITION: is the knowledge & information a company owns & uses to create a competitive advantage in its market segment. It is important to utilize & effectively make use of the intellectual capital the company has as a strategic resource & a weapon for competition. What are the 3 components of Intellectual Capital? 1. Human Capital: NOTE: Small businesses are better than large companies in knowledge management due to their size DEFINITION: talent skills of a company’s work force. 2. Structural Capital: DEFINITION: accumulated knowledge & experience of the company in an industry. 3. Customer Capital: DEFINITION: established customer base (EX: Positive reputation & ongoing relationships). Knowledge Management DEFINITION: gathering, organizing, & disseminating (Spread Widely) the collective wisdom & employees’ experience for competitive advantage. Strategic Management DEFINITION: The process of developing a game plan to guide the company during achieving its vision, missions & goals & objective to prevent going off its desired course. II. Building a Competitive Advantage Competitive Advantage DEFINITION: The collection of factors that differentiate a small business from its competitors & gives it a unique superior position within the market. Core Competencies DEFINITION: Refers to a unique set of skills, knowledge, & abilities a company develops in key areas such as: Superior quality Customer Service Innovation Team building NOTE: Entrepreneurs are given a blueprint for matching strength, weaknesses, opportunities & threats. How to gain a competitive advantage? 2|Page By building core competencies & concentrate on providing superior service & value for target customers. Creativity, imagination, experience, & vision is a must to identify or develop core competencies. www.MoussaAcademy.com 00201007153601 Features of a Strategic Management Procedure 1. Short planning horizons “2 years is better than 2 decades.” 2. Be informal & not overly structured “Shirt-sleeve approach.” 3. Encourage participation of employees & outside parties in planning. 4. Do not begin with setting objectives. 5. Maintain flexibility. 6. Focus on strategic thinking. III. The Strategic Management Process (9 Steps) Develop Clear Vision & Translate into Mission Statement Vision Vision addresses the question “What kind of company do we want to become?” A clear vision helps a company in 4 ways: Provides direction. Determines decisions. Motivates people. Continue to confront challenges. Vision is based on an entrepreneur’s values to guide his business. Teamwork (people-focused) Integrity (highest ethical standards) Commitment (client-driven) Mission Statement 3|Page Establishes the purpose of the business & gives it a sense of direction. Reflects company core values. Answers the questions “why we are here” & “where we are going.”. Example: Intel’s mission statement is “We create world-changing technology that improves the life of every person on the planet.” www.MoussaAcademy.com 00201007153601 Assess Company’s Strength & Weakness Strengths DEFINITION: positive internal factors that contribute to a company’s ability to achieve its mission, goals, & objectives. Weakness DEFINITION: negative internal factors that prevent achieving its mission, goals, & objectives. NOTE: A balance sheet is prepared to define company strength, weaknesses, opportunities, & threats. Scan Environment to Find Opportunities & Threats Opportunities DEFINITION: positive external options that the company can benefit accomplishing its mission, goals, & objectives. Threats DEFINITION: negative external forces that slows down a company’s ability to achieve its mission, goals, & objectives. Example: new competitors, economic recession, & government regulations. Identify Key Value for Business Success 4|Page Key Success Factors DEFINITION: factors determine a company’s ability to compete in an industry. www.MoussaAcademy.com 00201007153601 Analyse Competition Competitive Intelligence Program: 1. Avoid surprises from competitors. 2. Identify new competitors. NOTE: A competitive matrix is used to evaluate competitors 3. Improve reaction time to competitor’s action. Predict competitor’s next moves. Types of competitors: 1. Direct competitors DEFINITION: Businesses that offer the same products & services, & customers compare prices, features, & deals during shopping. 2. Significant competitors DEFINITION: Businesses that offer some of the same products & services. 3. Indirect competitors. DEFINITION: Businesses that offer the same or similar products or services only in a small number of areas & target a rare number of the same customers. Create Goals & Goals Objectives DEFINITION: A goal is a broad, general statement of what you want to achieve & are usually long-term & may take months or even years to achieve. Example, a goal for a business might be to increase its revenue by 20% over the next 3 years. Objectives DEFINITION: Objective is a specific, measurable, & achievable step that helps you to achieve your goals. 5|Page It is smaller & usually short-term & can be accomplished within a few weeks or months. Example, an objective for the business goal mentioned earlier might be to increase its sales by 10% in the first year through targeted marketing campaigns. www.MoussaAcademy.com 00201007153601 Select Appropriate Strategies Strategy DEFINITION: a road map that shows the actions necessary to fulfill a company’s mission, goals, & objectives. (Reaching Goals & Objectives) 3 basic strategies: 1. Cost leadership strategy: strives to be the lowest-cost producer. 2. Differentiation strategy: seeks to build customer loyalty. 3. Focus strategy: recognizes that all markets are not the same. Translate Plans Implementing the strategy. into Actions When implementing strategies, companies must make the best use of competitive advantage of their size by: 1. Responding quickly to needs. 2. Remain flexible. 3. Search for new market segments. 4. Building & defending market niches 5. Act quickly in market. Establish Accurate Controls Controlling projects & keeping them on schedule means that the key performance indicators. must be identified. A balanced score board gives a quick & complete picture of the company’s performance against its strategic plan. 5 perspectives of scoreboard: 1. Customer perspective 2. Internal business perspective 3. Innovation & learning perspective. 4. Financial perspective 5. Corporate citizenship 6|Page www.MoussaAcademy.com 00201007153601 IV. Definition Table Intellectual Capital is the knowledge & information a company owns & uses to create a competitive advantage in its market segment. Human Capital talent skills of a company’s work force. Structural Capital accumulated knowledge & experience of the company in an industry. Customer Capital established customer base (EX: Positive reputation & ongoing relationships). Knowledge Management gathering, organizing, & disseminating (Spread Widely) the collective wisdom & employees’ experience for competitive advantage. Strategic Management The process of developing a game plan to guide the company during achieving its vision, missions & goals & objective to prevent going off its desired course. Competitive Advantage The collection of factors that differentiate a small business from its competitors & gives it a unique superior position within the market. Core Competencies Refers to a unique set of skills, knowledge, & abilities a company develops in key areas such as: Strengths positive internal factors that contribute to a company’s ability to achieve its mission, goals, & objectives. Weakness negative internal factors that prevent achieving its mission, goals, & objectives. Opportunities positive external options that the company can benefit accomplishing its mission, goals, & objectives. 7|Page www.MoussaAcademy.com 00201007153601 Threats negative external forces that slows down a company’s ability to achieve its mission, goals, & objectives. Key Success Factors factors determine a company’s ability to compete in an industry. Direct competitors Businesses that offer the same products & services, & customers compare prices, features, & deals during shopping. Significant competitors Businesses that offer some of the same products & services. Indirect competitors. Businesses that offer the same or similar products or services only in a small number of areas & target a rare number of the same customers. Goals A goal is a broad, general statement of what you want to achieve & are usually long-term & may take months or even years to achieve. Objectives Objective is a specific, measurable, & achievable step that helps you to achieve your goals. Strategy a road map that shows the actions necessary to fulfill a company’s mission, goals, & objectives. (Reaching Goals & Objectives) 8|Page www.MoussaAcademy.com 00201007153601 Week 4: Choosing a Form of Ownership & Franchising and the Entrepreneur IT364 IT ENTREPRENEURSHIP & Innovation Moussa Academy 00201007153601 WWW.MOUSSAACADEMY.COM Contents Contents.............................................................................................................................................................. 1 I. Choosing a Form of Ownership................................................................................................................... 2 II. The Sole Proprietorship............................................................................................................................... 2 III. The Partnership and The Corporation..................................................................................................... 2 IV. Alternative Forms of Ownership............................................................................................................. 4 IV.A S Corporation....................................................................................................................................... 4 IV.B Limited Liability Corporation............................................................................................................... 5 V. Franchising and the Entrepreneur............................................................................................................... 5 V.A What is a Franchise?............................................................................................................................ 5 V.B Types of Franchising............................................................................................................................ 5 V.C Benefits and Drawbacks...................................................................................................................... 5 V.D Franchising and the Law...................................................................................................................... 6 V.E The Right Way to Buy a Franchise....................................................................................................... 6 V.F Franchise Contracts............................................................................................................................. 6 V.G Trends in Franchising........................................................................................................................... 7 V.H Franchising as a Growth Strategy........................................................................................................ 7 VI. Definition Table....................................................................................................................................... 8 1|Page www.MoussaAcademy.com 00201007153601 I. Choosing a Form of Ownership Choosing a Form of Ownership There is no best form of ownership. The best ownership depends on the entrepreneur’s situation. What are the issues to consider when choosing the form of ownership? Control Managerial ability. Business goal. Taxes consideration. II. The Sole Proprietorship DEFINITION: ownership where the owner only makes decisions ALONE. The Sole Proprietorship The MOST POPULAR and SIMPLEST FORM of ownership. Advantages Disadvantages Simple to create. Limited access to capital Low cost to establish. Limited abilities and skills. Encourages profits. Feelings of isolation Only one to make decisions. Lack of business continuity No legal restrictions Easy to stop and terminate III. The Partnership and The Corporation. Partnership DEFINITION: association of multiple people who own a business together to make profit. This is done by writing a partnership agreement. Advantages Disadvantages Easy to establish Authority conflicts Larger capital Partners are bound by the laws. Little government regulation Enhance skills 2|Page www.MoussaAcademy.com 00201007153601 Partnership Agreement Uniform Partnership Act DEFINITION: a document that states the terms of ownership to protect the rights of each owner. Contents of a partnership agreement: Names of partners. How profits/ loss will be distributed. Procedure for adding new members. Decision making authority. Financial authority. DEFINITION: Arranges the law of dealing with partnerships in the US. Three key elements: Common ownership interest in a business Sharing the business’s profits and losses Right to participate in managing the partnership People must accept: Duty of loyalty Duty of follow the rule (obedience). Duty of care Duty to inform Limited Partnerships DEFINITION: one or more general partners and one or more limited partners. Limited Liability Partnerships DEFINITION: All partners are limited partners. Corporation Corporation: DEFINITION: a legal entity created by the state that can sue or be sued in its name, enforce contracts, transfer property, and can be liable if violates law. C-corporations: creations of the state. Domestic corporation: a corporation doing business in the state of incorporation. Foreign corporation: doing business in another state. Alien corporation: formed in another country but doing business in the US. Publicly held corporations: have large numbers of shareholders. Closely held corporations: shares controlled by small number of people. 3|Page Limited partners are treated as investors and does not manage the business. www.MoussaAcademy.com 00201007153601 Incorporation Requirements 1. Corporation’s name. 2. Statement of purpose 3. Time horizon 4. Place 5. Officers and director’s detail. Advantage and Disadvantages Advantages Disadvantages Limited liability of stockholders High cost and a lot of time needed in the process Ability to attract capital Double taxation Legal requirements and red tape Loss of control by founders Ex: when Steve Jobs lost control of Apple in 1985 IV. Alternative Forms of Ownership IV.A S Corporation S corporation Criteria DEFINITION: A type of corporation (Same as any corporation) only made for tax purposes. 1. U.S.-based corporation 2. At least 75 shareholders maximum 100 shareholders. 3. Corporations and partnerships cannot be shareholders. 4. No nonresident alien shareholders (Look at alien corporation page 3). When is it a Wise Choice? When is an S Corporation a Wise Choice? 1. Start-up companies that predict net losses. 2. Companies that reinvest most of their earnings Advantage and Disadvantages Advantages Disadvantages Passes all its profits or losses through to individual shareholders Tax advantages may not be permanent Income is only taxed once at the individual tax rate Avoids the tax C corporations pay on assets 4|Page www.MoussaAcademy.com 00201007153601 IV.BLimited Liability Corporation Limited Liability Corporation DEFINITION: S-Corporation but is not subject to the same restrictions. 2 Documents 1. Articles of organization 2. Operating agreement LLC cannot have more than 2 of these 4 characteristics: 1. Limited Liability 2. Continuity of life 3. Free transferability of interest 4. Centralized management V. Franchising and the Entrepreneur V.A What is a Franchise? What is it? DEFINITION: semi-independent owners pay fees to a company for the right to sell its products and services under the franchiser’s trade name. V.B Types of Franchising Types 1. Trade-name franchising 2. Product distribution franchising 3. Pure franchising (comprehensive franchising, business format franchising) V.C Benefits and Drawbacks Benefits & Drawbacks Benefits 1. Franchisee (The one who got the right to use the name) gets a ready working business. 2. Gets standard quality of product and service. 3. Increased chance of success Drawbacks 1. Limited freedom 2. Strict operations 3. Market saturation 5|Page www.MoussaAcademy.com 00201007153601 V.D Franchising and the Law Franchise Disclosure Document (FDD) Key tool for protection A copy of the FDD must be presented before any offer or sale. FDD must be written in English. Contains information such as: 1. business experience 2. Franchise fees and costs 3. Lawsuits involving the franchiser. V.E The Right Way to Buy a Franchise The Right Ways Be prepared, have common sense and be patient. 7 Steps: 1. Evaluate yourself. 2. Research market. 3. Consider options. 4. Get a copy of FDD and study it. 5. Talk to existing franchisees. 6. Ask franchisors questions. 7. Make you choice. V.F Franchise Contracts Contracts 6|Page Govern the franchisor-franchisee relationship. Example: rights and obligations. Termination: Franchisors can terminate “with or without cause” while franchisees can’t. Renewal: Franchisors usually have the right to renew or refuse contract renewal Transfer and buybacks: Franchisees are usually not free to sell their business without approval www.MoussaAcademy.com 00201007153601 V.G Trends in Franchising Trends Smaller, nontraditional locations: o Intercept the market. Conversion franchising: o offers instant name recognition. Refranchising: o DEFINITION: reducing the number of company-owned stores Area development: o offers exclusive rights to an area. Master franchising: o can be a good option in international markets. Cobranding: o involves teaming up with complementary products or services Serving dual-career couples and aging baby boomers V.H Franchising as a Growth Strategy Strategies To create a successful franchise operation, you need: 1. A unique concept 2. A replicable concept 3. Expansion plans. 4. Legal guidance 7|Page www.MoussaAcademy.com 00201007153601 VI. Definition Table The Sole ownership where the owner only makes decisions ALONE. Proprietorship Partnership association of multiple people who own a business together to make profit Partnership Agreement a document that states the terms of ownership to protect the rights of each owner. Uniform Partnership Act Arranges the law of dealing with partnerships in the US. Limited Partnerships one or more general partners and one or more limited partners. Limited Liability Partnerships All partners are limited partners. Corporation A legal entity created by the state that can sue or be sued in its name, enforce contracts, transfer property, and can be liable if violates law. S corporation A type of corporation (Same as any corporation) only made for tax purposes. Limited Liability Corporation S-Corporation but is not subject to the same restrictions. Franchise Refranchising 8|Page semi-independent owners pay fees to a company for the right to sell its products and services under the franchiser’s trade name. reducing the number of company-owned stores www.MoussaAcademy.com 00201007153601 Week 5: Buying an Existing Business IT364 IT ENTREPRENEURSHIP & Innovation Moussa Academy 00201007153601 WWW.MOUSSAACADEMY.COM Contents Contents.............................................................................................................................................................. 1 I. Buying an Existing Business......................................................................................................................... 2 II. How to Buy a Business?............................................................................................................................... 2 III. Methods for Determining the Value of a Business................................................................................. 3 IV. Negotiating the Deal................................................................................................................................ 4 1|Page www.MoussaAcademy.com 00201007153601 I. Buying an Existing Business 1. Business continues to be successful. 2. Guarantees a job. Advantages 3. Easier access to financing. 4. Increase experience. 5. Can purchase without changing business model and products (Turnkey Business). 6. Install equipment with known capacity. 1. Requires cash. 2. Risk to buy business that is losing money. Disadvantages 3. Customers may be loyal to the old owner. 4. Hard to make changes. 5. Risk to buy overpriced business. II. How to Buy a Business? 1. Know the business that best fits your personality. 2. Develop a list of criteria to define the ideal business. 3. Prepare a list for the possible business that meets criteria. 7 Steps 4. Due diligence process 5. Explore financing options. 6. Negotiate with owner. 7. Ensure smooth transition of ownership. What are the sources used? Internet Preparing a List of Business Bankers 2|Page Accountants Newspapers Trade associations www.MoussaAcademy.com 00201007153601 DEFINITION: Investigating, studying, reviewing, and verifying relevant information concerning the most attractive business candidates in greater detail. What are the 5 critical areas of the business and the potential deal? 1. Motivation: why does the owner want to sell? Due Diligence Process 2. Asset valuation: Determine assets value by investigating: 3. Market potential: learning about customers and competitors. 4. Legal issues: legal aspects that represent risks. 5. Financial condition. III. Methods for Determining the Value of a Business 1. Balance Sheet 3 Techniques 2. Earnings approach 3. Market Approach Balance Sheet Computes the company’s net worth (Owner’s equity). Net worth= assets – liabilities. Variation 1: Adjusted Balance sheet technique. DEFINITION: a realistic method to determine a company’s value. more refined than the balance sheet. considers the future income potential of the business. Variation 1: Excess Earnings Method. Earnings approach Estimates goodwill. Calculates opportunity costs, extra earning power and tangible net worth. Variation 2: Capitalized Earnings Approach. Calculates risk level. Variation 3: Discounted Future Earnings Approach. (DFEA) 3|Page Estimates net income for several years. www.MoussaAcademy.com 00201007153601 1. Estimate the company’s earnings for 5 years. 2. Discount the future earnings using the present value factor. DFEA 5 Steps 3. Estimate the growth stream (more than 5 years). 4. Discount the income estimate growth using the present value factor. 5. Compute the total value of the business. Marketing Approach Uses price/earnings ratio. Business value= average P/E ratio*estimated net earnings. Disadvantages 1. Unrepresentative estimates. 2. Find similar companies for comparisons. 3. Apply after-tax earnings to determine the value. IV. Negotiating the Deal 1. Develop a negotiating strategy. 2. Focus on the issue, not the person. Tips 3. Avoid seeing the other person as an enemy. 4. Be a good listener. 5. Be patient. 6. Be flexible. 1. Get the highest price. Seller Goals 2. Minimize tax burden. 3. Maximize cash from deal. 4. Avoid unreasonable contract terms. 1. Buy at the lowest price. Buyer Goals 2. Negotiate favorable price. 3. Avoid the seller to compete against him. 4. Minimize payment upfront. 4|Page www.MoussaAcademy.com 00201007153601 1. Straight business sale. 2. Sale of Controlling Interest. 3. Restructure the Company. Structuring the 4. Employee Stock Ownership Plan (ESOP) Deal DEFINITION: a plan in which employees earn a part or the whole company. 5. Family Limited Partnership. 6. Sell to International Buyer. 1. Communicate with employees. Ensuring a Smooth Transition 2. Be honest with employees. 3. Listen to employees. 4. Ask the seller to be a consultant. 5. Talk about the vision with stakeholders. V. Definitions Due Diligence Process Adjusted Balance sheet technique Employee Stock Ownership Plan (ESOP) 5|Page Investigating, studying, reviewing, and verifying relevant information concerning the most attractive business candidates in greater detail. a realistic method to determine a company’s value. a plan in which employees earn a part or the whole company. www.MoussaAcademy.com 00201007153601 Week 6: New Business Planning Process IT364 IT ENTREPRENEURSHIP & Innovation Moussa Academy 00201007153601 WWW.MOUSSAACADEMY.COM Contents Contents.............................................................................................................................................................. 1 I. Conducting a Feasibility Analysis and Crafting a Winning Business Plan.................................................... 2 II. The Elements of a Business Plan: What Lenders and Investors Look for in a Business Plan?..................... 4 III. The Pitch: Making the Business Plan Presentation................................................................................. 4 IV. Market Diversity: Pinpointing the Target Market. Determining Customer............................................ 5 V. Needs and Wants Through Market Research.............................................................................................. 5 V.A How to Conduct Market Research?..................................................................................................... 5 V.B The Marketing Mix.............................................................................................................................. 6 VI. Definitions............................................................................................................................................... 7 1|Page www.MoussaAcademy.com 00201007153601 I. Conducting a Feasibility Analysis and Crafting a Winning Business Plan 1. Feasibility Analysis Should we proceed with the idea? 2. Business Model Planning Requirements How should we proceed with the idea? 3. Business Plan Elements of a Feasibility Analysis 2 Areas of Feasibility Analysis Transforming the idea into a successful business. 1. Product/Service feasibility. 2. Financial feasibility. 3. Entrepreneur/team feasibility. 1. Determining how attractive is the industry. 2. Identifying possible niches. RBBTT 1. Rivalry among competing firms. 2. Bargaining power of suppliers. Porter’s 5 Forces Model 3. Bargaining power of buyers. 4. Threat of new entrants. 5. Threat of substitute of products/services. Niches can: 1. Change Niche 2. Go away. Strategy Risk 3. Grow 4. Require adaptability of initial plans 2|Page www.MoussaAcademy.com 00201007153601 A feasibility analysis consists of 4 interrelated components: 1. Industry/Market feasibility analysis. 2. Product/Service feasibility analysis. DEFINITION: Determines the degree to which the product/service appeals to customers. 3. Financial feasibility analysis. 4 Interrelated Components Capital requirements. Estimated earnings. Time out of cash DEFINITION: Surviving at current rate of negative cash flow. Return on Investment (Roi) 4. Entrepreneur feasibility analysis. (Is the idea right for me?) Entrepreneurial readiness DEFINITION: knowledge, experiences, and skills necessary to have any chance to be successful. What are the components of a business model canvas? 1. Value proposition 2. Customer segments 3. Customer relation Business Model 4. Channels 5. Key activities 6. Key resources 7. Key partners 8. Revenue streams 9. Cost structure 3|Page www.MoussaAcademy.com 00201007153601 II. The Elements of a Business Plan: What Lenders and Investors Look for in a Business Plan? 1. Title page and table of contents. 2. Executive summary 3. Mission statement. 4. Business strategy. Elements of a 5. Description of product/services Business Plan 6. Goals & objectives 7. Business strategy 8. Marketing strategy 9. Competitor analysis 1. Make sure the plan has an attractive cover and is visually appealing. Tips for an 2. Use spreadsheets for financial forecasting. Entrepreneur 3. Always include cash flow projections 4. Keep your plan crisp (long enough, but not too long) What Lenders and Investors Look for in a Business Plan? 1. Capital 5 Cs of Credit 2. Capacity 3. Collateral 4. Character 5. Conditions III. The Pitch: Making the Business Plan Presentation 1. The company & Service/Products 5 Basic Areas 2. The problem to be solved. 3. Description of the solution. 4. Business model 5. Competitive edge 4|Page www.MoussaAcademy.com 00201007153601 Prepare Practice Steps of Presentation Demonstrate enthusiasm. Focus on talking about the opportunity of your idea, Hook investors quickly IV. Market Diversity: Pinpointing the Target Market. Determining Customer 1st Step in Building a Marketing Plan Identify target market DEFINITION: the group of customers at whom the company aims its products or services. The program depends on a clear, concise definition of the targeted customers. (NOT one-size-fits-all approach) Long Tail of Marketing V. Needs and Wants Through Market Research Market DEFINITION: gathering information about demographic, social, and cultural trends to determine Research strategies. V.A How to Conduct Market Research? Individualized (one-to-one) Marketing Primary Research Techniques 5|Page DEFINITION: gathering data based on individuals and then developing a marketing plan designed specifically to appeal to their needs and preferences. Surveys and questionnaires Social media Focus groups. Daily transactions www.MoussaAcademy.com 00201007153601 Data Mining 3 Types of Information DEFINITION: Using software that uses statistical analysis, database technology, and AI to find hidden patterns, trends, and connections within the data so for prediction and decision making. 1. Geographic 2. Demographic 3. Psychographic How to Become an Effective One-to-One Marketer? 1. Identify the best customers. 2. Collect information on these customers. Effective Oneto-One Marketer 3. Calculate the lifetime of these customers. 4. Know the customer’s buying cycle. 5. Make sure that Service/Product surprises customers. 6. See customer complaints. 7. Use information to appeal individual needs V.B The Marketing Mix The Marketing Mix Product Life Cycle Publicity Product Place Price Promotion Introductory Growth and acceptance Maturity and competition Market saturation Product decline DEFINITION: any commercial news covered by the media that boosts sales bit for which a small company does not pay. The right price for a product or service depends on: 1. Company’s cost structure. Price 6|Page 2. An assessment of what the market will endure. 3. The desired company image. www.MoussaAcademy.com 00201007153601 4 Channels of Distribution (Consumer Goods) 2 Channels of Distribution (Industrial Goods) 1. Manufacturer to consumer 2. Manufacturer to retailer to consumer 3. Manufacturer to wholesaler to retailer to consumer 4. Manufacturer to wholesaler to wholesaler to retailer to consumer 1. Manufacturer to industrial user 2. Manufacturer to wholesaler to industrial user VI. Definitions Product/Service feasibility analysis. Time out of Cash Target Market Determines the degree to which the product/service appeals to customers. Surviving at current rate of negative cash flow. the group of customers at whom the company aims its products or services. Market Research gathering information about demographic, social, and cultural trends to determine strategies. Individualized (one-to-one) Marketing gathering data based on individuals and then developing a marketing plan designed specifically to appeal to their needs and preferences. Data Mining Using software that uses statistical analysis, database technology, and AI to find hidden patterns, trends, and connections within the data so for prediction and decision making. Publicity any commercial news covered by the media that boosts sales bit for which a small company does not pay. 7|Page www.MoussaAcademy.com 00201007153601 Week 7: Creative Use of Advertising and Promotion & Pricing and Credit Strategies IT364 IT ENTREPRENEURSHIP & Innovation Moussa Academy 00201007153601 WWW.MOUSSAACADEMY.COM Contents Contents.............................................................................................................................................................. 1 I. Creative Use of Advertising & Promotion................................................................................................... 2 I.A Define Your Company’s Unique Selling Proposition (USP).................................................................. 2 I.B Creating a Promotional Strategy......................................................................................................... 2 I.C Selecting Advertising Media. How to Advertise Big on a Small Budget?............................................ 3 I.C.1 Selecting Advertising Media............................................................................................................ 3 I.C.2 How to Prepare an Advertising Budget?......................................................................................... 3 II. Pricing: A Creative Blend of Art and Science............................................................................................... 4 III. Pricing Techniques for Service Businesses.............................................................................................. 4 IV. Definitions............................................................................................................................................... 5 1|Page www.MoussaAcademy.com 00201007153601 I. Creative Use of Advertising & Promotion. I.A Define Your Company’s Unique Selling Proposition (USP) DEFINITION: a key benefit of a product or service that sets it apart from its competitors. (Better than competitors). USP Focuses on intangible or psychological benefits. I.B Creating a Promotional Strategy. Promotion DEFINITION: Influencing customers to buy Products/Services through persuasive communication. 1. Publicity Examples 2. Personal Selling 3. Advertising Publicity DEFINITION: any commercial news “FREE OF CHARGE” that boosts sales. 1. Articles of interest Examples 2. Sponsoring events/seminars 3. Involve celebrities (On the Cheap) 4. Newsletters Personal Selling DEFINITION: Personal contact between sales personnel and customers. 1. Enthusiastic 2. Understand the Service/Product Top 3. Use direct approach. Salespeople 4. Plan thoroughly 5. Selecting accounts with the greatest sales potential. Advertising DEFINITION: non-personal sales presentation paid by sponsor. 1. Plan more ads at a time. Advertising 2. Set long run objectives and monitor them. Tips 3. Use themes that appeal to target customers. 4. Focus ads on UPS. See UPS DEFINITION 2|Page www.MoussaAcademy.com 00201007153601 I.C Selecting Advertising Media. How to Advertise Big on a Small Budget? I.C.1 Selecting Advertising Media 1. Email 2. Social Media Media Options 3. TV 4. Radio 5. Newspaper/Magazine 6. Word-of-mouth I.C.2 How to Prepare an Advertising Budget? 1. What is affordable The 4 methods 2. Matching competitor’s ad expenditures 3. Percentage of sales (Past/Future) 4. Objective-&-task Ad Scheduling Strategies 1. Continuous Spend on Ads budgets consistently over time. 2. Flighting Spend budget in carefully timed batches. 3. Pulsing Spending is consistent across the year but concentrates the rest in carefully timed batches. 1. Comparative: The 3 2. Shared: Advertising Techniques DEFINITION: shares the cost of advertising with the retailer. DEFINITION: A group of businesses that produces ads. 3. Stealth: Other Techniques 3|Page DEFINITION: innovative ads located in unexpected areas. Repeat successful ads. Use identical ads in different media. Concentrate advertising when customers are most likely to buy. www.MoussaAcademy.com 00201007153601 II. Pricing: A Creative Blend of Art and Science DEFINITION: The area between the price ceiling and price floor. Price Range How to Face Rising Costs Communicate with customers. Raise prices incrementally. Shift to less expensive raw materials Include a service charge instead of raising prices III. Pricing Techniques for Service Businesses Based on: Services Pricing Materials Labor employed. Allowance for overhead Profit 4|Page www.MoussaAcademy.com 00201007153601 IV. Definitions USP Promotion A key benefit of a product or service that sets it apart from its competitors. (Better than competitors). Influencing customers to buy Products/Services through persuasive communication. Publicity Any commercial news “FREE OF CHARGE” that boosts sales. Personal Selling Personal contact between sales personnel and customers. Advertising Comparative Non-personal sales presentation paid by sponsor. Shares the cost of advertising with the retailer. Shared A group of businesses that produces ads. Stealth Innovative ads located in unexpected areas. Price Range 5|Page The area between the price ceiling and price floor. www.MoussaAcademy.com 00201007153601