Small Business Lecture Notes PDF

What is Small Business What is Small Business? A business which is independently owned, operated with a small number of employees (>100), small sales revenue, and a small impact on the industry with a total value of assets and value of total equity. Why study small business? Small business tend...

What is Small Business What is Small Business? A business which is independently owned, operated with a small number of employees (>100), small sales revenue, and a small impact on the industry with a total value of assets and value of total equity. Why study small business? Small business tend to grow more than double in 30 years better than bigger businesses. and is an increasing interest at Colleges and universities. Advantages of Small Businesses Over Large Firms Small businesses can offer more personalized products like artwork, clothing, jewelry, and furniture. They also depend heavily on advanced scientific and engineering knowledge. Types of IT Businesses IT Consultancy (Cyber Security. IT Support, Business Analytics, Machine Automation) Website or App Developer Software Development Networking Services Computer Repair Online Retail or ebay Trader  Economics Economics is the study of the ALLOCATION of SCARCE resources to meet UNLIMITED human wants. The main problem in economics is the need to allocate limited resources among competing wants because there are unlimited wants and limited resources Entrepreneurial Talent is the talent of a risktaker who creates the enterprise which would benefit him with profits.  Microeconomics looks at how individual businesses and consumers make decisions.  Macroeconomics looks at how the whole economy works together as a system. Macro economics is bigger than micro Innovation, Franchising and Entrepreneurship Innovation and entrepreneurship can be a source of business opportunity. Innovation leads to new ideas, products, or methods that create opportunities for businesses. Converting an innovative idea into a business concept requires the creativity and risk taking of an entrepreneur to achieve success. Secrets of Small Business Success + Advantages  Can quickly adapt to customer needs (flexibility)  Personalized products  Competitive advantage  Direct interactions with customers build loyalty, improving customer relationships  Constantly creatively improving products, services, processes and management Risks of Small Business Ownership Mistakes leading to business failure Inadequate management, Neglect, inexperience, insufficient capital, debt, heavy expenses, less profits Eight reasons why many small businesses fail. Lack of experience Lack of commitment Lack of expertise Bad or no strategy Ethical failure Growing too fast Poor leadership Poor financial control  How to Start a New Business Venture An owner must always remain motivated, confident and determined, possessing a strong will to succeed and not give up, even if the business does not thrive as expected on the first attempt. Right decisions must be made about the type of business to start, whether to purchase a new or existing business, and types of marketing, just to name a few areas. Many start a business for independence, to make profit and to fulfill a market need Key Considerations to start a new venture Having a unique idea that can be turned into a business Being prepared to compete in the market with a good strategy Finding a market that is currently underserved Identifying the target audience Plan the marketing strategy Understanding what makes your offering unique to make them choose it Determining the costs to produce and sell your product, and how much to charge customers.  Lemonade Stand Example Functional Areas Marketing and Sales (Developing products, setting prices, promoting, and managing customer relationships) Supply Chain Management (Buying raw materials, managing production, and maintaining records) Accounting and Finance (Recording transactions, managing cash flow, and supporting sales forecasts) Human Resources (Recruiting, training, and compensating employees, and developing personnel plans based on sales.) Monk & Wagner, 'Concepts in Enterprise Resource Planning', Second Edition 44 What is Entrepreneur/ Entrepreneurship ? Entrepreneur is someone who searches for change, responds to it, and exploits change as an opportunity. Entrepreneurship is the process of designing, launching and running a new business, which typically begins as a small business, such as a startup company, offering a product, process or service for sale or hire. Entrepreneurship is necessary for stimulating economic growth and employment opportunities Entrepreneurial Behaviors Innovation - The business involves new idea Creation - A new business is started General Management - The owner guides the business Performance Intention - The owner expects high level of growth/Profit Risk Assumptions - The owner bears the risk of loss Traits of Successful Entrepreneur Virtually every successful entrepreneur possess these four characteristics – Passion – Determination – Trustworthiness – Knowledge – Internal locus of control – High energy level – Self confidence – Tolerance for ambiguity – Self reliance, desire for independence – High need for achieve ment – Flexibility – Passion and action orientation Your Decision for Self-Employment Advantages – Independence, creativity, better life, profits Disadvantages – personal liability, long work hours, uncertain income, less advice Stages in the life cycle of an entrepreneurial firm Small Business Manager vs Entrepreneur? Entrepreneur Process of identifying opportunities for creating a new organization to satisfy them. This involves a Start-up Process, the role is a Leader Small Business Manger Ongoing process of owning and operating an established business. This focuses on running an established business and may not require start-up process the role is a Manager Forms of Business Organizations / Ownerships A business entity is any organisation engaged in the production of goods and services. Sole Proprietorship Partnership Corporations Advantages and Disadvantages owning a company Advantages Disadvantages Experienced management Cost of Formation Growth potential Too much growth result in inefficiencies Easy transfer of ownership Double Taxation A long life Personal Liability for debts Sole Proprietorship/Sole Trader A business owned and operated by one person No legal requirement for establishing a Sole Proprietorship. Name of the business must be registered with the (ASIC), only if it is different from the name of the owner. Advantages Disadvantages Independence Unlimited liability Easy to set up Limited resources Easy to close Limited skills Tax benefits Lack of continuity Partnership Partnership is an unincorporated business ownership structure. They require a minimum of two, a maximum of 20 partners as co owners for business profit. There are exceptions to this number in different fields. Firm pays no tax but individual partners pay taxes. General partnership – Partners/ owners share management and risk of business Limited partnership Some owners have limited liability, but one must have unlimited liability as a general partner. Investors are only responsible for how much they invested (they don’t need to be liable) Incorporated limited partnerships are are used for businesses with high risk, so getting legal advice is a good idea. Uniform Partnership Act (UPA): This is a set of laws that govern partnerships in many places. - Requires all partners to agree on property assignments, with each partner having one vote. - Accurate records must be kept, and all partners have the right to review them. - Partners must remain loyal to the partnership and are entitled to their share of the profits. - Salaries must be agreed upon in writing. - If there’s a loss, each partner is responsible for covering their share. Articles of Partnership: This is the actual agreement between the partners in a partnership. - A formal contract between the partners forming a partnership. - It defines the obligations and responsibilities of the owners. - The agreement should include: - The partnership's name, location, and purpose. - Each partner's contribution (cash, services, or property). - Rules for authority, decision-making, and management roles. - The partnership’s duration and how profits and losses are shared. - Details on partner salaries and withdrawals. Incorporation Incorporation is changing the ownership structure to a company. A incorporation can be a private or public company. To incorporate, a company name must be registered with ASIC, which will issue a certificate of incorporation and an Australian Company Number (ACN). Directors must be appointed to manage the company. Directors are now called shareholders. Corporate This is the most complex business structure. A corporate is a business owned by shareholders who invest money to make a profit. The more shares someone owns, the more control they have. The main goal is to make money for the shareholders. It is a separate company with rights like a person, meaning it can sue, be sued, own property, and conduct business transactions. The company must operate according to its contract and adhere to state laws. Proprietary (private) companies This is the most common type usually with 2 - 50 private shareholders. It must include "Proprietary Limited" or "Pty Ltd" after its name. Public Corporations Public corporations sell shares to the public and are listed on stock exchanges. They must follow strict federal, state, and regulations, including disclosing financial information in their annual report. They need both an ACN and an ABN. Public Companies Public companies list their shares to the public, allowing the public to buy and sell them. Public companies are usually large and offer a wide range of products, unlike private companies, which are often small or medium-sized. Cooperatives A cooperative is a business owned by the people who use its services, Everyone has an equal say, no matter how much they use the cooperative. The goal is to help its members rather than just making a profit. Profits are usually shared among members based on how much they use the cooperative, not how much they invested. Examples : Farmers pooling resources to market their produce. Community education centers offering courses. Credit unions and building societies pooling funds to lend to members. Features of cooperatives They need at least seven members to start, and no member can hold more than 20% of the shares. They are separate legal business managed by a board of directors. Profits can be reinvested in the cooperative if most members agree. Trusts A trust is a business structure where a trustee (often a company) manages property or business for the benefit of members called beneficiaries. Trusts are less common due to high setup costs and complex laws. Limited liability Incorporation offers shareholders limited liability, meaning they can only lose the money they paid for their shares if the company fails. They aren’t responsible for the company’s debts beyond their investment. However, directors must ensure the company follows the law and acts in shareholders' interests. The letters “Ltd” indicate that a company has limited liability. Charity/Non-profit corporation/Community Organization A nonprofit corporation is a tax-exempt organization created for purposes like religion, charity, education, or the arts. It relies on grants and public donations to cover its expenses. Choosing a legal structure The legal structure of your organization will impact meeting procedures, member requirements, reporting rules, tax responsibilities, costs, and more. Things to consider: Where will the nonprofit operate Will membership be active and change frequently? What activities will the nonprofit organize? How will the organization raise funds for its activities and events? Public funds Are set up to collect tax deductible gifts and contributions, and is a requirement for some deductible gift recipient (DGR) categories. Can be established as a separate entity, or as part of a sponsoring organization  Choosing and registering a name Incorporated associations - "Incorporated" / "Inc." at the end of name. Companies limited by guarantee must include "Limited" or "Ltd" after their name, though exemptions may apply. Co-operatives must include "Co-operative" in their name and "Limited" or "Ltd" after it. Indigenous organizations registered under the CATSI Act must include specific terms in their name.  Franchising Franchise – Contractual license to operate an individually owned business as part of a larger chain (local keels) Franchisor – parent firm that develops a product or business process and sells the right franchisees (keels superstore) Franchisee – person who purchases the franchise to sell the product, service of the franchisor (person buying keels as a franchise) Types of franchising A manufacturer allows retailers to sell a brand-name item. A producer licenses distributors to sell a product to retailers. A franchisor provides brand names, techniques, or services instead of a complete product. Franchising Systems: Production Distribution Franchising Business Format Franchising Copyright © Cengage Learning. All rights reserved. 5|1  Franchising (cont’d) The growth of franchising Dual-branded franchises, is when two different brands operate under one roof, sharing the same space and resources. This allows them to attract more customers by offering a variety of products or services.The success rate for franchises is higher than that for other small businesses Reasons why franchises fail  Too rapid expansion  Inadequate capital  Management skills Copyright © Cengage Learning. All rights reserved. 5|2  Advantages of Franchising TO THE FRANCHISOR ⚫ Fast and controlled way to get products to customers. ⚫ No need to run their own stores. ⚫ Saving money for making more products and advertising. ⚫ Franchising keeps product and quality consistent. ⚫ Franchisees are motivated to work hard. ⚫ Multiple sources of capital TO THE FRANCHISEE ⚫ Chance to start a successful business with less money. ⚫ Customers are already guaranteed. ⚫ The franchisor is there to help and give advice. ⚫ Access to promotional materials for campaigns. ⚫ Opportunity for growth Copyright © Cengage Learning. All rights reserved. 5|3  Disadvantages of Franchising TO THE FRANCHISOR ⚫ Failure of the franchisee to operate franchise properly ⚫ Disputes with and lawsuits by franchisees over the terms of the franchise ⚫ Sharing profits with franchisees ⚫ Disputes with franchisees TO THE FRANCHISEE ⚫ Franchisor retains a large amount of control over the franchisee’s activities ⚫ Sharing profits ⚫ Restriction of freedom Copyright © Cengage Learning. All rights reserved. 5|4 Selecting A franchise Figuring out how much money is needed to buy and run the franchise until income is equals to expenses Knowing where equity will come from. Being okay with giving up independence for the benefits of the franchise. Having the skills and experience to work well with the franchisor, employees, and customers. Being prepared to commit to working with the franchisor for a long time to sell its products or services. Franchise Information Name, address, description. Franchising units, franchising fee, capital  Analyse the Market It's important to check if there is a demand for the product or service at the prices you plan to charge in your area. Consider whether the population in your area will grow, stay the same, or decrease over the next five years. Think about whether the product or service you’re considering will be more, less, or just as popular in five years. Evaluate the existing competition in your area for the product or service you want to sell, including non-franchise businesses and other franchises. The Franchise Agreement The legal contract binding both parties in a franchise outlines the specific conditions of the relationship between the franchisee and the franchisor. You may or may not be able to negotiate its terms. Consult a before signing any franchise agreement If the franchise agreement requires you to pay advertising fees, ensure that a portion of your fee goes to local advertising in your area.  Franchise, Royalty, and Advertising Fees The franchise fee = amount of money you have to pay to become a franchisee. Royalty fees = percentage of gross sales that you pay to the franchisor. Royalties are calculated from gross sales, not from profits. Key Things to Consider Before Buying a Business 1. Assess if the business fits the market you want to enter. 2. Consider your experience in this business and industry and its importance to success. 3. Evaluate the company's potential for success. 4. Determine the changes needed and their extent to realize the business's full potential. 5. Identify a reasonable price and payment method that works for both you and the seller. 6. Assess if the company will generate enough cash to cover itself and provide a suitable return on investment. 7. Consider whether starting a new business from scratch might be a better option than buying an existing one. Advantages of Buying a Business ⚫ It may continue to be successful ⚫ It may already have the best location ⚫ Employees and suppliers are established ⚫ Equipment is already installed ⚫ Inventory is in place and trade credit is established Disadvantages of Buying a Business ⚫ People may try to bring you down ⚫ Previous owner may have created ill will ⚫ “Inherited” employees may be unsuitable ⚫ Location may have become unsatisfactory ⚫ Equipment may be obsolete or inefficient 8 Chapter 7: Buying a Business  Acquiring a Business Analyze your skills, abilities, and interest and prepare a list of potential candidates. Investigate and evaluate candidate businesses and select the best one. Explore financing options like the seller. Ensure a smooth transition by communicating with employees, being honest, being attentive, asking the seller to serve as a consultant through the transition. Five Critical Areas for Analyzing an Existing Business 1. Determine the real reason the owner wants to sell. 2. Assess the physical condition of the business. 3. Evaluate the potential of the company's products or services. 4. Analyze customer characteristics and composition. 5. Conduct a competitor analysis. 6. Consider the relevant legal aspects. 7. Check if the business is financially sound. 9 Chapter 7: Buying a Business The Legal Aspects of Buying a Business Lien: This is when creditors have a legal right to an asset because the business owes them money. They can claim or sell the asset to recover what they’re owed. Contract assignment - buyer’s ability to take over the rights and obligations under the seller’s existing contracts. Bulk Transfer: This is a law that protects a buyer when they purchase a business. It ensures that if the business owes money to creditors, the buyer isn’t held responsible for those debts. 1. The seller must give the buyer a list of all creditors. 2. The buyer and seller must list all the property that is part of the sale. 3. The buyer must keep this list for six months. 4. The buyer must notify each creditor in writing about the sale at least ten days before they take possession of the goods or make payment, whichever happens first. 10 Chapter 7: Buying a Business The Legal Aspects of Buying a Business Restrictive covenant (covenant not to compete) - contract in which a business seller agrees not to compete with the buyer within a specific time and geographic area. Ongoing legal liabilities - physical premises, product liability, and labor relations. Due Diligence Process The process of investigating the details of a company that is for sale to determine the strengths, weaknesses, opportunities, and threats facing it 11 Chapter 7: Buying a Business  The acquisition process Identify and approach candidate Sign disclosure statement Sight letter of intent Buyers' due diligence investigation Draft the purchase agreement Begin the transition Financial Soundness Income statements and balance sheets (3-5 years) Income tax returns (3-5 years) Owner’s compensation (and relatives) Cash flow Sources: Adapted from Buying and Selling: A Company Handbook, Price Waterhouse,( New York: 1993) pp.38-42;Charles F. Claeys, “The Intent to Buy,” Small Business Reports, May 1994, pp.44-47. Determining the Value of a Business ⚫ Balance Sheet Technique ⚫ Variation: Adjusted Balance Sheet Technique ⚫ Earnings Approach ⚫ Variation 1: Excess Earnings Approach ⚫ Variation 2: Capitalized Earnings Approach ⚫ Variation 3: Discounted Future Earnings Approach ⚫ Market Approach 40 Chapter 7: Buying a Business  The Five Ps of Negotiating. Preparation - Examine the needs of both parties and all of the relevant external factors affecting the negotiation before you sit down to talk. Patience - Don’t be in such a hurry to close the deal that you end up giving up much of what you hoped to get. Impatience is a major weakness in a negotiation. Poise - Remain calm during the negotiation. Never raise your voice or lose your temper, even if the situation gets difficult or emotional. It’s better to walk away and calm down than to blow up and blow the deal. Persistence - Don’t give in at the first sign of resistance to your position, especially if it is an issue that ranks high in your list of priorities. Persuasiveness - Know what your most important positions are, articulate them, and offer support for your position. 1. Starting a business Research your industry and decide on a suitable business structure Write business, marketing plans and determine costs Apply for right registrations and licenses 2. Do market research Research objective, market, customers, competitors Gather data, make conclusions and decisions 3. Choose the right business structure Researching different structures Step by step selection tool Choosing popular structures 4. Writing a business plan Write a vision, draw mind map for business plan, write swot analysis Grab 3 top strategies that would aid vision and write a force field analysis Business plan Determine feasibility of business Consider audience, keep it simple, see their pov, create a professional image Get capital for startup and provide direction after startup 3 tests 1. Reality test (external component) Show that there's a strong demand for your product or service by looking at industry growth, market niches, potential customers, market size, and competition. If these are positive, it means your idea has a good market. 2. Competitive test (internal component) Prove you can outshine competitors through your team's skills, experience, and quality. Highlight any unique technology, strong customer relationships, proprietary methods, or partnerships that give you an advantage. 3. Value test Demonstrate that investors will get a good return on their investment or that you can repay loans. Your business plan should make it clear that the financial benefits are worth the investment. Writing a business plan contd.. Contents of a business plan Cover Page | Table of Contents | Executive Summary (Company Information, Market Opportunity, Financial Data) | Background | Environment and Industry Analysis | Products or Services | Marketing Research and Evaluation | Manufacturing and Operations Plan | Management Team | Timeline | Critical Risks and Assumptions | Benefit to Community | Exit Strategy | Financial Plan | Appendix 5. Writing a marketing plan Summary of marketing plan Analysis of your business and market Marketing objectives and strategy of your business Your marketing mix Action plan with budgets Organizational implications and contingencies Evaluating and monitoring strategies Supporting documentation 6. Estimate your costs Review business plan to determine major expenses Estimate startup costs One-off costs (establishment costs – license fees, insurance) Cost of purchasing equipment Working capital (Money needed to cover initial setup costs and running expenses for the business) Architectural Plan costs (electrical, lighting, painting, security, kitchen bathroom plumbing) Staffing Costs (recruitment, wages, uniforms) Professional Services costs (banking fee, electricity, phone, fax, internet). Determine running costs Running costs can include wages, buying of stock, Internet access fees, shipping/delivery fees, rent, and utilities and marketing costs To keep track (cash flow statements, balance sheets, start up costs records, profit and loss statement, break even analysis) Compliance needs (licenses needed to start a business) licenses - business registration, ABN, GST, council permits etc. certificate - food handling certificate, Responsible Serving of Alcohol certificate insurance - public liability, professional indemnity, building, contents, income legal work and lawyer - accounting work and bookkeeper/accountant. Approaches to small business startup Traditional start up model Pre start - Have an idea, get idea validation, get setup guidelines, develop business plan, source and resource fundings Post start - Launch business and see if anyone will buy the product or service New startup model Growing, expanding start-up too quickly before it's ready is the main reason many new businesses fail.  Feasibility Analysis ⚫ Process of determining whether an idea is a viable foundation for creating a successful business. Its purpose is to determine whether a business idea is worth pursuing. ⚫ If the idea passes the feasibility analysis, the entrepreneur’s next step is to build a solid business plan for capitalizing on the idea. ⚫ A feasibility analysis consists of three interrelated components: industry and market feasibility analysis, product or service feasibility analysis, financial feasibility analysis Industry and Market Feasibility Analysis ⚫ Porter’s Five Forces model, developed by Michael E. Porter, is a tool used to analyze the attractiveness of an industry. It looks at five key factors that work together to shape the competitive environment and determine how appealing the industry is for businesses. ⚫ (1) the rivalry among competing firms ⚫ (2) the bargaining power of suppliers ⚫ (3) the bargaining power of buyers, ⚫ (4) the threat of new entrants ⚫ (5) the threat of substitute products or services.  Product or Service Feasibility Analysis ⚫ This determines the degree to which a product or service idea appeals to potential customers and identifies the resources necessary to produce the product or provide the service. This portion of the feasibility analysis addresses two questions: ⚫ Are customers willing to purchase our goods and services? ⚫ Can we provide the product or service to customers at a profit? Approaches CUSTOMER SURVEYS AND QUESTIONNAIRES. Keep them short. Word your questions carefully. use a simple ranking system (e.g., a 1- to-5 scale, with 1 representing “definitely would not buy” and 5 representing “definitely would buy”). Test your survey on a small number of people before putting it to use. FOCUS GROUPS enlisting a small number of potential customers (usually 8 to 12) to provide feedback on specific issues about your product or service (or the business idea itself). Listen carefully for what focus group members like and don’t like about your product or service as they tell you what is on their minds PROTOTYPES An effective way to gauge the viability of a product is to build a prototype of it. A prototype is an original, functional model of a new product that entrepreneurs can put into the hands of potential customers so that they can see it, test it, and use it. Minimal viable product 1. Hypothesis - Customers will buy my product idea because…..? 2. Evidence - What can I do to disprove/ prove my hypothesis? 3. MVP - A product that will test the hypothesis with customers  Financial Feasibility Analysis ⚫ checking if it's financially possible. This basic financial check helps you see if the business idea is worth pursuing. ⚫ You just need a general look at 3 main things 1.Capital Requirements: How much money you'll need to start and run the business 2.Estimated Earnings: How much money you expect to make from the business. 3.Return on Investment (ROI): How much profit you’ll make compared to the amount of money you invested.  Strategy  Strategy is a high level plan to achieve one or more goals under conditions of uncertainty.  Dr. Vladimir Kvint defines strategy as a system of finding, formulating, and developing a doctrine that will ensure long-term success if followed faithfully. Strategic management  This provides an overall direction to the enterprise. It involves specifying the organization's objectives, developing policies and plans designed to achieve these objectives, and then allocating resources to implement the plans. Corporate vs business strategy  Corporate strategy involves answering what business should we be in?  Business strategy involves answering the question how shall we compete in this business?  A business strategy is how it sets out to achieve its desired objectives. It can simply be described as a long-term business planning  Business Model  An abstract representation of an organization of how a company operates, how its planned and organized key activities, cooperation and finances. It includes main products or services the company offers and explains how these elements help achieve the company’s goals. Essentially, it describes how a company creates and delivers value to its customers and captures value for itself. Business model framework Technology centric communities have defined "frameworks" for business modeling. These frameworks attempt to define a rigorous approach to defining business value streams.  Business Model continued.. Bait and hook business model  The bait and hook business model ( "razor and blades business model" / "tied products business model")  This involves offering a basic product at a very low cost, (the "bait"), then charging compensatory recurring amounts for refills or associated products or services (the "hook"). Examples include: razor (bait) and blades (hook); cell phones (bait) and air time (hook); computer printers (bait) and ink cartridge refills (hook); and cameras (bait) and prints (hook).  A variant of this model is Adobe, a software developer that gives away its document reader free of charge but charges several hundred dollars for its document writer. Bricks and clicks business model A company integrates both offline (bricks) and online (clicks) presences. One example of the bricks-and-clicks model is when a chain of stores allows the user to order products online, but lets them pick up their order at a local store. Cutting out the middlemen model The removal of intermediaries in a supply chain, Instead of going through traditional distribution channels, which had some type of intermediate (such as a distributor, wholesaler, broker, or agent), companies may now deal with every customer directly, for example via the Internet. Premium business model  providing expensive and high-quality products or services that attract customers who are very selective about what they buy. In this type of business model, how the brand is perceived (its image) is crucial because quality can be based on personal opinion.  BMW and Mercedes-Benz in the auto industry, Gucci bags and Rolex watches in the luxury accessories industry Professional opensource model  In this open-source software business model, a company makes money by charging for professional services, maintenance, and support related to the software, even though the software itself is free to use.  Linux, started becoming popular and businesses were cautious about using it because they worried that there was no single company responsible for ensuring its reliability or providing support. Subscription business model  The subscription business model is a business model where a customer must pay a subscription price to have access to the product/service. The model was pioneered by magazines and newspapers, but is now used by many businesses and websites. New trends  Today, the type of business models might depend on how technology is used.  For example, entrepreneurs on the internet have also created entirely new models that depend entirely on existing or emergent technology. Using technology, businesses can reach many customers with minimal costs. Business Model Canvas - A. Osterwalder, Yves Pigneur, Alan Smith, and 470 practitioners from 45 countries The business model canvas is one of the most used frameworks for describing the elements of business models. Key Partners external companies or individuals that a business collaborates with to achieve its objectives. These can include suppliers, alliances, or other strategic partnerships that help the company operate efficiently, reduce risks, or acquire essential resources. Key Activities These are the critical actions and tasks that a business must perform to deliver its value proposition, operate effectively, and sustain its business model. This includes activities related to production, problem-solving, network management, and platform maintenance. Key Resources Key resources are the essential assets a business needs to function, deliver value to customers, and sustain its operations. These resources can be physical, intellectual, human, or financial and are necessary for creating and offering a value proposition, reaching markets, and maintaining customer relationships. Value Proposition- The hypothesis The value proposition defines the unique value that a business offers to its customers. It addresses the customer's needs and problems by providing solutions through products or services that differentiate the business from its competitors, making it attractive to its target market. I intend to offer ( insert product/ service) to a ( insert name/type of customer) so that they will be able to (insert the benefit/value to the customer). Customer Relationships This segment focuses on how a business interacts with its customers, ranging from personal to automated methods. It covers how the business acquires, retains, and grows its customer base while ensuring customer satisfaction and loyalty. Channels Channels refer to the various means through which a business communicates and delivers its value proposition to its customers. This can include distribution channels, sales channels, and communication platforms, all of which help the business reach its customer segments effectively and efficiently. Customer Segments Customer segments represent the different groups of people or organizations that a business aims to reach and serve. These segments are defined by specific needs, behaviors, or attributes, and understanding them allows a business to tailor its value proposition and strategies to meet their expectations. Costs Structure The cost structure outlines all the costs and expenses that a business incurs to operate. It includes fixed and variable costs, such as production, marketing, and operational expenses, and helps the business understand where it needs to allocate resources efficiently. Revenue Streams Revenue streams represent the various ways a business generates income from its customers. This can include different pricing strategies, sales of products or services, subscription models, licensing, or other forms of monetization that ensure the business remains profitable. Value Proposition Canvas  Intermediary – Agents, software, or businesses that provide a trading infrastructure to bring buyers and sellers together Cybermediation – development of new types of intermediaries enabled by digital technology that didn’t exist before the beginning of ebusiness Reintermediation – This is when new intermediaries enter the market, adding additional steps or value to the existing business process. Disintermediation – Occurs when a business sells directly to the customer online and eliminates the intermediaries Impact of the internet : Travel, Entertainment, Electronics, Financial services, Retail, Automobiles, Education and training Web 1.0 - WWW during its first few years of operation. Ebusiness opened a new marketplace for any company willing to move its business operations online  Paradigm shift – Occurs when a new radical form of business enters the market that reshapes the way companies and organizations behave  Ecommerce – Buying and selling of goods and services over the Internet  Business – Includes ecommerce along with all activities related to internal and external business operations Web 2.0 – The next generation of Internet use – a more mature, distinctive communications platform characterized by three qualities  Collaboration : Collaboration inside and outside the organization  Sharing : Free sharing through open sourcing  Free : Free user contributed content Web 3.0 – Based on “intelligent” Web applications using natural language processing, machine-based learning and reasoning, and intelligence applications  Semantic Web – A component of Web 2.0 that describes things in a way that computers can understand  Integration of legacy devices, open technologies for integration, worldwide online database …  Marketplaces vs. E-marketplaces  Marketplace : place where people buy and sell goods and services. Traditionally, it’s a city square with stalls set up by traders, where people can shop. This type of market has been around for a long time, and many are still active today.  E – marketplace : electronic platform where companies register as sellers or buyers to communicate, do transactions and conduct business over the Internet.  Various sellers can offer their products or services in one central online platform, making it easier for buyers to browse and compare different options. (Ebay, Amazon)  Components (customers, sellers, goods, infrastructure, a front end, a back-end support services) What is E-Commerce? The use of the Internet to perform business and business transactions online between organizations and individuals. Example : individual online stores, where businesses sell directly to consumers through their own websites.  Important Features of E commerce  Mass customization – The ability of a business to customize its products or services to meet each customer’s specific needs.  Personalization – When a company knows a customer's preferences well enough to create offers that match what they like.  Round-the-clock service: Websites that are available to customers 24/7.  Extended distribution channels: Additional methods for a business to reach customers who wouldn’t have purchased from them before.  Reduced transaction costs: Lower costs for finding buyers, sellers, or other business partners. M-Business / Mobile Business – Is conducting business transactions and operations using mobile devices like smartphones or tablets that are connected to the internet. It includes any kind of business activity that can be done on a mobile device, such as purchasing goods and services. M-commerce or mobile commerce - electronic commerce made through mobile devices. A subset of M-Business, m-commerce specifically focuses on buying and selling products or services through mobile devices. M-commerce is used for selling ringtones, games, making payments for services like music, and apps. It also sends info like football scores through SMS, news updates, mobile banking. Payments are made by premium-rate calls, mobile billing, or credit deduction. Advantages of M-Commerce  increased customer satisfaction, cost savings, and new business opportunities. EC Dimension  Traditional commerce: all dimensions are physical Businesses that operate physically (brick-and-mortar) are part of the old economy. They handle all transactions and interactions in physical locations, selling products through face-to-face methods. Their operations are conducted offline, relying on in-person interactions and physical agents.  Pure EC: all dimensions are digital Businesses that operate exclusively online are pure online (virtual) organizations. They handle all their operations—sales, transactions, and customer interactions— through the internet, with no physical presence required.  Partial EC: a mix of digital and physical dimensions Business that combine a physical presence with online operations(click- and-mortar) , allowing them to offer products or services both in-store and through e-commerce platforms. This approach helps them reach customers in various ways and adapt to changing shopping habits. Pure Vs. Partial Ecommerce  Three dimensions:  the product (service) sold [physical / digital];  the process [physical / digital]  the delivery (intermediary) agent [physical / digital]  Traditional commerce  all dimensions are physical  Pure EC - all dimensions are digital  Partial EC - all other possibilities include a mix of digital and physical dimensions  EC Models E-commerce models are different ways businesses and individuals conduct transactions online. 1. Virtual Storefront: An online shop where you can buy things directly from the website. 2. Information Broker: A service that gives you details about products and prices. 3. Transaction Broker: Shows buyers different prices from various sources to choose from 4. Online Marketplace: A website that shows products from many sellers to compare & buy. 5. Content Provider: Makes & shares content (videos) and earns money through fees or ads. 6. Online Service Provider: Offers support, services and help for tech product 7. Virtual Community: An online space where people chat & meet (forums, social media) 8. Portal: A starting point on the web that offers access to various services and content. 9. Auction: An online site where people bid on items, and prices go up with demand.  E-business Models  Ebusiness model – A plan that details how a company creates, delivers, and generates revenues on the internet  Classification of EC by the Nature of the Transaction  Business-to-business (B2B) : Businesses sell to other businesses.  Business-to-consumer (B2C): Businesses sell directly to individual customers.  Business-to-business-to-consumer (B2B2C): A business sells to another business, which then sells the product or service to the final customer.  Consumer-to-business(C2B): Individuals sell their products or services to businesses or ask businesses to bid on what they need.  Consumer-to-consumer (C2C) : People sell items directly to other people.  Mobile commerce (m-commerce)—Buying and selling done through mobile devices like smartphones.  Classification of EC by the Nature of the Transaction  Location-commerce - (l-commerce) : Mobile transactions aimed at people in specific places and times.  Intrabusiness (organizational) EC: Online activities within an organization where different parts of the organization share goods, services, or information.  Business-to-employee (B2E): A business provides services, information, or products directly to its employees.  Collaborative commerce (c-commerce) People or groups work together and communicate online.  E-government: Government-to-citizens (G2C): Government agencies buy or provide goods, services, or information to people or businesses online.  Exchange (electronic): An online market where many buyers and sellers trade.  Exchange-to-exchange (E2E): Online markets connect with each other to share information. Supply Chain Management  Managing everything from getting raw materials to making and delivering the final product to customers. (Plan – Source – Make – Deliver ) A supply chain is the network of activities that deliver a product/service to the customer  Sourcing (purchasing) of raw materials, goods for sale, service inventories  Order entry  Operations planning  Transformation process (manufacturing or services)  Quality management  Logistics:  Transportation (traffic)  Distribution (delivering the product to customers) 13  Objectives of Supply Chain Management  Cut material costs and reduce the expense of moving materials.  Reduce the amount of inventory you keep.  Make sure materials arrive on time at every stage and to customers so products are available and delivered quickly.  Ensure materials are good quality for making products or providing services.  Get help with product design or other services from suppliers if needed. Information Sharing in the supply chain Goal of sharing information = to match what people want with what is available.  Demand: actual sales, sales forecasts, booked orders, custom orders  Product availability: current inventory, production plans, shipping schedules, shipments  Quality: Information on the quality of products from suppliers.  Types of websites for B2B commerce  Electronic storefronts: Allow buyers to consult an online catalog, place an order, pay or make payment arrangements, and track shipments  Like B2C electronic storefronts  E marketplaces: Allow buyers and sellers in the same industry to negotiate contracts, place orders, track shipments, pay or make payment arrangements, and work together on product design E – commerce and E – marketing  E-commerce involves buying and selling processes supported by electronic means, primarily the Internet  E-marketing is when a company uses the internet to advertise, promote, and sell its products and services. This includes using the web and internal networks like an intranet.  What is Social Media Various forms of user generated content and the collection of websites and applications that enable people to interact and share information online  Social networking sites, Blogs, Video and photo sharing sites, Streaming sites Why is social media so important for business?  It finds you customers and builds clientele  It gives businesses the ability to find out what people are saying about them  It introduces your brand  It gives you feedback about your brand  It provides a test audience (vs. focus groups)  Solidifies your reputation as a valuable and knowledgeable resource  Opportunity to digitally advertise product or service  Understand trends  Major Questions for small business  How do I use social media in my business and how can I incorporate this in my business plan?  How do I make money using social media and how will this change the way I do business How to start your own online small business  E-Commerce is a 6-step process. All online businesses will go through the first 3 steps:  Create the online content.  Host the created content on the Internet.  Market the website and content. Businesses conducting online sales will need to continue the final 3 steps:  Collect and record customer orders.  Process payments.  Fulfill customer orders. Building an E commerce site  Suppliers – Find good suppliers for quality products to be delivered  Your price point - price comparisons are extremely easy for the consumer. Your price point is important in a transparent market.  Customer relations - Integrate E-mail, FAQs, knowledge bases, forums, chat rooms into your e-commerce to relate to your customers and help you differentiate yourself from the competition.  The back end: fulfillment, returns, customer service - These processes make or break any retail establishment. Also consider these other capabilities:  Gift-sending / Giveaways  Special Discounts  Seasonal or periodic sales Small Business Accounting?  The system within a business for converting raw data from source documents (like invoices, sales receipts, bills, and checks) into information that will help a manager make business decisions. Accounting Process  Small Business Accounting Basics Accounting systems revolve around three elements:  Assets : resources your business owns.  Liabilities : debts your business owes  Owner’s equity : what the owner have invested in the business (capital or net worth). Accounting Equations  Double-entry accounting system,  Every transaction is recorded twice—once as a debit (a "minus") to one account and once as a credit (a "plus") to another account. This keeps everything balanced. For example, if you buy something, it shows up as an asset on one side and as a liability or owner's equity on the other. Single-entry accounting system  This is a simpler system where income and expenses are tracked in a running log, like a checkbook. It’s often used by small businesses. While it can help you track money coming in and going out, it doesn't allow you to create detailed financial statements like a balance sheet or income statement. Unlike double-entry accounting, it doesn't automatically check for errors. Quickbooks Pro - America ’s mall business financial software helps make your business more profitable. MYOB, Mind Your Own Business, is an Australian multinational corporation that provides tax, accounting and other services to small and medium businesses.  Cash and Accrual Methods of Accounting  Most businesses use the accrual method for accounting. This means they record income and expenses when they happen, not when the money is received or paid. For example, if you sell something on credit, it’s recorded as money owed to you, even if you haven’t been paid yet.  This method also lets you spread out the cost of expenses over time, even if you pay all at once. For instance, if you pay for insurance once a year, you can record it as a monthly expense in your books.  cash-basis method of accounting, you record income when you receive the money and record expenses when you pay them.  This method is easier to manage than the accrual method. It works well for very small businesses, businesses without inventory, or those that only deal in cash. However, using the cash method can sometimes give a misleading picture of your finances over time.  Journals and Ledgers  A journal - is just where you write down the transaction date, the amount, and which accounts should be debited and credited. You’ll have different journals for things like sales, purchases, cash received, and cash paid out.  At regular intervals (daily, weekly, or monthly), you’ll transfer the transactions from your journals into a general ledger.  A general ledger - is a summary book that summarizes all your transactions and shows the balances for all your accounts. Financial statement showing revenue, Financial statement showing a firm’s expenses, allowing us to calculate profit or assets, liabilities and owners equity loss in a specific time period Income Statement Balance Sheet Statement of Cash flow Financial statement showing cash inflows and outflows of a firm Using Financial Statements to Run Your Small Business DAILY 1. Check your cash balance on hand. 2. Check your bank balance. 3. Calculate daily summaries of sales and cash receipts. 4. Note any problems in your credit collections. 5. Record any money paid out WEEKLY 1. Cash flow : Update a spreadsheet of regular receipts and disbursement entries. This will help see what is going on in your business and help plan for any cash deficiencies. 2. Accounts receivable : Note especially slow-paying accounts. 3. Accounts payable : Note discounts offered. 4. Payroll : Calculate the accumulation of hours worked and total payroll owed. 5. Taxes : Note when tax items are due and which reports are required. Using Financial Statements to Run Your Small Business MONTHLY 1. If you use an outside accounting service, provide records of your receipts, disbursements, bank accounts, and journals. 2. Review your income statement. 3. Review your balance sheet. 4. Reconcile your business checking account. 5. Balance your petty cash account. 6. Review federal tax requirements and make deposits. 7. Review and age your accounts receivable. Ratio Analysis  Calculations that compare important financial aspects of a business.  Benchmarking : A comparison of a firm ’ s financial ratios to best companies  Industry average analysis: A comparison of a firm ’ s financial ratios to the average companies  a) Liquidity Ratios  Liquidity refers to how quickly an asset can be turned into the amount of cash it is currently worth to meet its short-term liabilities to creditors as they come due. The more quickly it can become cash, the more liquid it is.  There are two important liquidity ratios: current ratio, quick (or acid-test) ratio. 1. Current Ratio : measures the number of times the firm can cover its current liabilities with its current assets. Current ratios of 1.0 or less are low and can provide financial difficulties. Current ratios of more than 2.0 is excessive liquidity that can be negative to the firm’s profitability.  Stereo City has only $0.29 in liquid assets for each $1.00 of current liabilities. The company obviously counts on making sales to pay its current obligations. When compared to the industry average of.60, Stereo City is much less liquid than other companies, and short-term creditors 2. Quick Ratio : The quick (acid-test) ratio : This shows if the company can pay what it owes soon by using the things it can turn into money the fastest. b) Activity Ratios Measure the speed with which various assets are converted into sales or cash. (Using what you already have to get things done) These ratios are often used to measure how efficiently a firm uses its assets. inventory turnover average collection period fixed asset turnover total asset turnover 1. Inventory Turnover - This ratio checks how fast a company sells the products it has in stock. If the company sells its products quickly, the inventory turnover ratio will be high. 2. Average Collection Period - This measures how quickly a company collects money from customers who bought things on credit. A shorter time means the company is getting its money back quickly. 3. Fixed Asset Turnover - This ratio shows how well a company uses its big, long-term things (like machines or buildings) to make money. A higher ratio means the company is using these assets efficiently. 4. Total Asset Turnover - This looks at how well a company uses all of its assets (everything it owns) to generate sales. A higher ratio means the company is good at using what it owns to make money. c) Leverage Ratios Leverage ratios help us understand how much a company depends on (debt) to run its business. They also show if the company can easily pay back the money it owes. The more debt a firm uses, the more financial leverage it has.  Two important leverage ratios are the debt ratio and the times-interest-earned ratio. 1. Debt Ratios - how much of the company’s (assets) is bought with borrowed money. 2. Times-Interest-Earned Ratio - This ratio tells us if the company can easily pay the interest it owes on its debt. A high ratio means you can easily pay, but it might also mean you didn’t borrow enough to make good use of leverage. c) Profitability Ratios  help us understand how well a company is doing in making money profit and assets. They also show us how effective the company's management is.  There are 3 profitability ratios: net profit margin, return on assets, return on equity. 1. Net Profit Margin - This ratio shows what percentage of sales turn into profit after expenses are deducted. A higher net profit margin means the company keeps more money from each sale. 2. Return on Assets (Return On Investment - ROI) - This ratio measures how well a company uses its assets to generate profit. It tells us how much profit is made for each dollar of assets. A higher ROA indicates better use of assets. 3. Return on Equity (ROE) - This ratio shows how much profit is made for each dollar of shareholders' equity. It helps us understand how effectively the company is using the money invested by its owners. A higher ROE means the company is doing a good job of generating profit from the owners' investments.  Managing Cash Flow  “A company that does not effectively manage its cash flow by balancing its income and expenses on a day-to-day basis is poised for collapse.”  The accounting definition of cash flow is the sum of net income plus any noncash expenses, such as depreciation and amortization. Motives for Having Cash: A firm needs cash for three reasons: (1) to make transactions (2) to protect against unanticipated problems (3) to invest in opportunities as they arise. Of these, the primary motive is to make transactions—to pay the bills incurred by the business. If a business cannot meet its obligations, it is insolvent. Continued insolvency leads directly to bankruptcy.  Cash-to-Cash Cycle (Operating Cycle) Tracks the way cash flows through the business. The period of time from when money is spent on raw materials until it is collected on the sale of a finished good. Search vs Execution Metrics Established companies focus on executing their plans, while startups are primarily engaged in searching for the right strategies and solutions. Income statements and balance sheets are examples of execution documents used by companies to track their performance. For startups, it's crucial to first identify and derive the metrics that are most relevant to their search and growth efforts. Metrics that matter : Value proposition / Revenue streams / Operating costs / Channel / Market type / Burn rate / Customer relationships Four critical resources Physical (company facilities – office space, company location)(products/services) Many physical goods are capital intensive Financial(friends, family, crowdfunding)(venture, capital, partners)(factoring, vendor financing) Human(qualified employees, mentors, teachers, coaches, advisors) Intellectual (branding, creative work, inventions) Revenue types Recurring Recurring revenue is a more predictable type of revenue. This means, the business has reasonable assurance, the revenue will occur at regular intervals. An example of this are monthly phone plans. Unless the contract is broken or the customer does not pay, the phone business can count with the monthly revenue. Recurring revenue streams are initially harder to implement but are more economical in the long run Transaction Based Revenue is earned by a transaction from a customer. A customer in a clothing store, buying a new jacket, generates a transaction based revenue. This type of revenue is often considered less attractive than the recurring model because an action is required to attract customers. Project Revenue  These are revenues generated through one time projects. Companies that rely entirely or largely need to invest a lot of effort into maintaining customer relationships. In this type of model, revenue is hard to predict, because it is hard for a business to know what lies further down the road Service Revenue  This is the least attractive revenue model, because while the other three models sell goods, this models essentially sells time.  An example of service based model are consulting firms. The offer their advice and commonly charge per hour.  Generating Revenue Streams  Direct revenue Stream This is money a company makes directly from its main business activities. For example, if a company sells products or services, the money it earns from these sales is its direct revenue. It's the primary source of income for the company.  Ancillary revenue Stream This is additional money a company earns from activities that are not its main business. For instance, a hotel might earn ancillary revenue from things like renting out conference rooms, offering paid parking, or selling food and drinks. Asset sale – sale of ownership right to a physical product Renting – free for temporary access to a product or service Usage fee – fee is proportional to the usage of services Subscription fee – fee for continuous access to a service Licensing – fee for use of some IP (including software) Intermediation fee – fee for bringing together two or more parties involved in a transaction (found in various types of marketplaces) Advertising – fee paid by brands and companies to get noticed by potential customers  Pricing  Pricing - process where a business sets the price to sell products and services and may be part of the business's marketing plan.  Pricing model = tactics you use to set the price in each customer segment  Pricing is one of the four Ps of the marketing mix. (The other three aspects are product, promotion, and place.)  Micromarketing is customizing products, brands, and promotions for specific groups within a market, called microsegments. Instead of targeting broad groups of customers, micromarketing ensures to meet the needs of smaller, and precise segments. This can include adjusting pricing and product features based on individual customer preferences or specific store locations. It's all about making marketing efforts more personal and relevant to each microsegment or even individual customer. Types of pricing 1. Fixed pricing – This sets a constant price for a product or service, no matter what. It includes methods like: Cost-Plus Pricing: Adding a fixed markup to the cost of production to set the price. Value Pricing: Setting prices based on what customers think the product is worth. Volume Pricing: Offering lower prices for buying in larger quantities. Each approach provides a stable and predictable pricing system. 2. Dynamic Pricing (surge pricing, demand pricing, time-based pricing) This involves changing prices based on current market conditions. It allows businesses to adjust prices according to shifts in demand, supply, and competitor prices. Techniques include: Negotiation-Based Pricing: Prices are set through negotiation. Yield Management: Adjusting prices based on expected demand. Real-Time Market Adjustments: Changing prices as market conditions change. Auctions: Selling products through bidding. Industries like hospitality, travel, entertainment, and retail often use dynamic pricing to maximize revenue and adapt to market changes. 3. Psychological pricing (price ending, charm pricing) - This strategy uses prices that end in.99, like $19.99 instead of $20.00, to make items seem cheaper. The idea is that people think prices ending in.99 are much lower than rounded prices, which encourages more purchases. This method takes advantage of how people perceive prices to make products look more affordable. 4. Algorithmic pricing - his uses automated systems to set prices with the goal of making the most profit. Algorithms analyze data like potential buyers' statistics, competitor prices, and market trends. For example, algorithms can change prices based on the lowest price from competitors or other strategies to optimize revenue. This method makes sure prices stay competitive and fit market conditions. 5. Strategic pricing – This sets prices based on how much value customers think they are getting from a product or service. Instead of just covering costs or matching competitors' prices, strategic pricing focuses on the perceived worth of the product. It aims to match the price with the value customers believe they are receiving, which can influence how much they are willing to pay. Most Common Approaches to Pricing Cost based pricing – This sets prices by adding a fixed markup to the cost of producing the product. It is not a strategic pricing method because it focuses on internal costs rather than customer needs or market conditions. Value based pricing (value optimized pricing) – This sets prices based on the perceived value to the customer rather than the cost of the product or historical prices. It often leads to higher profits because customers are willing to pay more if they see higher value, though it may not always affect sales volumes much. This approach is especially effective for products sold based on emotions (like fashion), in niche markets, during shortages (such as drinks at a hot summer festival), or for essential add-ons (like headsets for cell phones).  Laws of price sensitivity and consumer psychology (Thomas Nagle, Reed Holden) outline 9 laws and factors that influence how consumers perceive prices and how sensitive they are to price changes 1. Value Perception - People care about how much value they get, not just the price. High value can make them want the product for that price 2. Price Fairness - Prices need to feel fair. Unfair prices can push customers away. 3. Reference Prices - People compare prices to what they think is normal. Prices higher than this might seem too high. 4. Price Quality Relationship - Higher prices can suggest higher quality. If something costs more, people might think it’s better. 5. Purchase Context - How much price affects people can depend on what they’re buying. They might be less sensitive for things they really want or need. 6. Product Differentiation - Unique products can justify higher prices because they’re different from others. 7. Buying Frequency - For items bought often, people might react more to price changes than for items bought rarely. 8. Price Transparency - Clear pricing and information can affect sensitivity. Hidden costs can upset customers. 9. Price Change Impact - Small price changes might go unnoticed, but big changes can affect buying behavior.  Why Invest? ⚫ Investing for capital growth : This is when you invest with the goal of increasing the value of your investment over time. People do this to build their wealth and protect against inflation. ⚫ Investing for income : This involves investing to generate a steady income to add to their main source of money. Many retirees rely on income from their investments, such as dividends from shares or rent from property. Fixed interest products, like bonds and hybrids, can provide a regular income stream. The main investment areas – The best place to invest money can be from the four main investment areas: 1. Cash(e.g. business) 2. Fixed interest (bank,bonds) 3. Property (Real estate) 4. Shares  How to invest? ⚫ You first need to draw up a financial plan and have a proper strategy for investment ⚫ Do research and stay alert on real time market trends ⚫ Be consistent and invest I different diverse shares ⚫ Analyze your current financial position and understand the risks of investing ⚫ Have an investment time frame and regularly review your investment Shares A share is a piece of ownership in a company. A company can raise money by "going public," which means it gets listed on a stock exchange and sells shares to investors. When investors buy these shares, they own a part of the company and become shareholders.  Share categories 1. Income Shares - shares that pay larger dividends regularly that provide income without needing to sell the shares but don’t grow fast 2. Blue Chip Shares – shares from big stable companies with growth and steady dividends 3. Growth Shares – shares from companies growing faster than the average in their industry that don’t pay dividend because they are growing 4. Cyclical Shares - shares from companies where prices go up and downs with the economy 5. Defensive Shares – shares with stable prices from companies that produce essential goods  What is the share market? These organizations all provide similar services, such as helping companies raise capital and offering trading facilities. Industrialized countries have a share market. (London Stock Exchange, New York Stock Exchange, and Tokyo Stock Exchange.) Main functions of the share market The share market has two main functions: Primary Market: where companies raise money by issuing new shares to investors. Secondary Market: where investors buy and sell existing shares. The prices of these shares are determined by supply and demand in the market. The primary market - When a company wants to raise equity capital by offering new shares to the public, this process is called a float or an Initial Public Offering (IPO). The secondary market - helps buyers and sellers connect, set a price, and exchange shares for payment. On the ASX, shares can only be bought and sold through a stockbroker. Trading happens during ASX trading hours, with stockbrokers placing buy and sell orders for investors. Using a stockbroker to buy and sell shares As an investor, you have two ways to buy shares in a company: 1. Through a Float: This is when shares are offered to the public for the first time. 2. After the Float: Shares can only be bought and sold through a stockbroker. Stockbrokers act as your agent in the share market. You cannot buy or sell shares directly with the ASX. Long-term investors They aim to capture an upward trend in market value in future years Short-term investors They try to capture value from the volatility in the share market by buying and selling shares Important information Stock prices and market capitalization are the two factors that help to increase your knowledge about stock market Market capitalization: actual value the company or stock that is up for sale Stock prices : the price of a specific share sells for Number of outstanding shares price of stock = market capitalization of economy  The risks of shares Risk of Capital Loss: You could lose money if the company you own shares in fails. Volatility Risk: Share prices can fluctuate rapidly, rising and falling quickly. Timing Risk: Some shares may be riskier if the overall share market has risen sharply. Risk of Poor-Quality Advice: Poor advice from advisors can lead to bad decisions. Legislative Risk: Changes in laws and regulations can affect the value of shares. Currency Risk: Adverse movements in currency exchange rates can impact investments. Best time to buy ? All shareholders should be aware that the value of a share can drop to zero. No one, including we known experts can predict with certainty whether a specific share or the market will go up or dow We need to understand that shares will experience both rises and falls, but they should increase i value over the medium to long term. There are 2 types of stockbroking firms (advisory broking service, non advisory broking service) Advisory broking service (full-service) A full-service broker offers a range of services, including advice on buying and selling shares, investment recommendations, and research. They usually provide guidance on other types of investments and create tailored investment plans for their clients. Non-advisory broker (discount) Non-advisory brokers, who operate over the phone or online, do not provide recommendations or advice. Shareholders Shareholders can make a profit by selling their shares for more than they paid. They have various rights and benefits, including participating in annual general meetings, receiving reports and information, and getting dividends or participating in dividend reinvestment plans. Shareholders may also benefit from further issues of shares, share buy-backs, and other corporate actions.  The benefits of shares Shares for Capital Growth: Occurs when value of your investment increases over time. Shares for Dividend Income: A dividend is a portion of a company's profit paid out to shareholders. Dividend Reinvestment Plans (DRP) can enhance the capital growth effect of a share investment by reinvesting dividends to buy more shares. Trading, settling and CHESS The Trading Process: To buy or sell shares on the ASX, you place an order with a broker, by phone or online. Your order is entered into a system called Central Limit Order Book (CLOB), where it waits to be matched with other buy or sell orders based on price and order timing After a trade, you need to complete the exchange of shares for money, which is called settlement. The ASX uses a computer system called CHESS (Clearing House Electronic Subregister System) to handle settlements electronically so that everything is done digitally. Shares can be registered in two ways: 1. CHESS (Broker Sponsored): Shares are tracked with a Holder Identification Number (HIN). This system allows brokers to manage their clients' shareholdings. 2. Issuer Sponsored Subregister: Shares are tracked with a Shareholder Reference Number (SRN). Each ASX-listed company manages its own Issuer Sponsored Subregister for registering shares. Market indices - measuring the market An index is a way to measure performance over time. A share market index tracks the change in price of a group of shares. The number of shares in this group determines how well the index reflects the overall market. Market sectors To organize the 2,000+ companies listed on ASX, they can be categorized in several ways: By Size: Large capitalisation versus small capitalisation companies. By Performance and Volatility: Based on historical performance and price volatility. By Industry: Resource Companies: Companies involved in exploration and mining of minerals, oil, gas. Industrial Companies: All other companies that are not in the resources sector. GICS Sectors (Global Industry Classification Standard) A product by Standard & Poor's and Morgan Stanley Capital International designed to standardize industry definitions. Companies are grouped into GICS sectors based on their main business activities. Technical analysis Technical analysis is the study of past price movements of a share or the market. Charts are the main tool used in technical analysis: Line Charts: Show the price movement over time with a single line. Bar Charts: Display the opening price, highest high, lowest low, and closing price for each period, like a week. Candlestick Charts: Use rectangles or candles to show price movement. The candle is empty or a specific color (like green) for a day when the price went up and filled or a different color (like red) for a day when the price went down.  Trend analysis Share prices rise and fall over time. Uptrend: In an uptrend, each new high is higher than the previous high, and each new low is also higher than the previous low. Downtrend: In a downtrend, each new high is lower than the previous high, and each new low is lower than the previous low. Recognizing a Change of Trend: A change in trend is indicated by a series of higher highs (H1, H2) and higher lows (L1, L2, L3). Resistance and Support Lines: These lines help define buying and selling points. Resistance: This is when the market resists going higher because sellers enter the market and sell more shares at this price, preventing the price from rising further. Support: This is the price level where buying interest is strong enough to prevent the price from falling further. The price is prevented from going lower because a buyer or buyers are present at this level. Trend Analysis Rising Volume: When the volume increases at the time of a break in support or resistance, it's generally seen as further confirmation that the break is legitimate and the price is likely to continue moving in the same direction. Moving Average: This is a technical analysis tool that smooths out price data by creating a constantly updated average price over a specific time period, helping to identify trends.  Small Business Marketing  Marketing is much more than just selling or advertising. Marketing involves all the activities needed to get a product from the producer to the ultimate consumer  Management guru Peter Drucker said businesses have two basic functions:  Marketing and innovation. These are the only things a business does that produce results;  Marketing is seen narrowly as the art of finding clever ways to dispose of a company’s products. Many people confuse marketing with advertising and selling. However, authentic marketing is not about selling what you make, but rather about knowing what to make. It involves identifying and understanding customer needs and creating solutions that satisfy those needs while producing profits.  Marketing Goals  Qualitative (focus on how you want your business to be perceived)  Best Customer Service in Town  Office Out Of Home For Prestige  Perception of Personalized Service  Have Highest Quality  Be the first ( _______ ) business prospects think of  Quantitative(are specific numbers you aim to achieve)  Increase Sales from $27K to $100K in 12 Months  Double Number of Customers in 2 Years  Increase Market Share 1 point in 18 months  Increase marketing spend to 10% of sales as sales increase Small Business Marketing SCORE  Setting Marketing Objectives  2 groups marketing-performance objectives are specific, quantifiable outcomes, such as sales revenue, market share, and profit. For example, an objective of this type for a local insurance agency could be “to increase sales of homeowner’s insurance by 10 percent for the next fiscal year.” marketing-support objectives are what you must accomplish before your performance objectives can be met, such as educating customers about your products, building awareness, and creating image. Small business climate is challenging because lots of businesses start, products are introduced, promo messages are sent annually resulting in the competition being intense  Marketing Components/ Mix 4 Ps of Marketing = Product, Price, Promotion, Place 4Ps vs 4Cs Small Business Marketing SCORE  4 C’s  Customer Solution: Instead of forcing a customer into buying a set product, focus on understanding and meeting their needs. This approach involves talking with the customer to create a product or service that solves their specific problem.  Cost : The price of the product is just one part of the cost. It also includes other factors like the trouble of changing from one product to another and any ethical choices, such as deciding between organic and non-organic options  Convenience : The ease of buying a product affects how much value customers place on it. This includes how easy it is to find or access the product, whether it's through a nearby store or an online search.  Communication : Think of marketing as a two-way conversation with the customer, rather than just pushing messages at them. It involves listening to customer feedback and engaging in a dialogue.  Product  Position, Name, Packaging, Service, Warranty, Performance/ Features Why do customers buy products? Customers buy products to solve a problem or meet a need, not for the product itself. For example, people bought the drill bits because they wanted the quarter-inch holes they could create with them. For small businesses, understanding the underlying problem or “pain” that the prospect is trying to address is crucial. By focusing on the problem rather than just the product, businesses can better align their offerings with customer needs. Unique Selling Proposition (USP) This is a specific benefit that sets your product or service apart from the competition. It highlights what makes your offering unique and valuable to customers. Examples: Amazon.com: Books fast and cheap Domino’s Pizza: Fresh, hot pizza in 30 minutes Price  Cost, Competition, Customer Value, Volume Discount, Current Specials Promotion  Direct contact, Networking, Public Speaking, Writing, Promotional Events, Advertising Effective Promotional tactics  Create Awareness (News & press Release, Publicity, advertising, openhouse, seminar)  Create Comprehension(Personal Selling, website, target advertising)  Conviction (Personal Sales, Coupons, Contests)  Orders/Reorders (Trade Shows, Direct Mail Sales Campaign) Place  Retail Location, Direct Sales Force, SmallDealers, BusinessDistributors, Agents Marketing SCORE  Relationship marketing.  This is a business philosophy that goes beyond traditional marketing by focusing on building long-term relationships between buyers and sellers.  Instead of just aiming to make a sale, relationship marketing seeks to create ongoing connections that benefit both the customer and the business over time. This approach emphasizes trust, loyalty, and mutual value in the relationship. Sales and Operations Planning Sales and Operations Planning Dec. Jan. Feb. March April May June 1) Sales Forecast 5906 5998 6061 6318 6476 7128 2) Production Plan 5906 5998 6061 6318 6900 6700 3) Inventory 100 100 100 100 100 524 96 4) Working Days 22 20 22 21 23 21 5) Capacity (Shipping Cases) 7333 6667 7333 7000 7667 7000 6) Utilization 81% 90% 83% 90% 90% 96% 7) NRG-A (cases) 70.0% 4134 4199 4243 4423 4830 4690 8) NRG-B (cases) 30.0% 1772 1799 1818 1895 2070 2010  Developing a Sales Forecast  Your marketing plan should include a sales forecast, predicting future sales in both dollars and units.  There are two basic ways to forecast sales: build-up methods and break- down methods. Build-up method - identify as many target markets as possible and predict the sales for each. Then you combine the predictions for the various segments to create a total sales forecast. For example, if you plan to open an ice cream shop, can you estimate how many ice cream cones you will sell in a year? Break-down method - begin with an estimate of the total market potential for a specific product or an entire industry. This figure is broken down into forecasts of smaller units until you reach an estimate of how large a market you will reach and how many sales you will make. For example, If industry data shows that 4% of your local population buys similar products, calculate how many units you could sell and the corresponding revenue.  Identifying Target Markets  Market segmentation - process of dividing the total market for a product into identifiable groups, or target markets, with a common want or need that your business can satisfy.  A group of people who have a common want or need that your business can satisfy, who are able to purchase your product, and who are more likely to buy from your business. Information technology and marketing services Sharing, PR, blogging, music, video, podcast, social media, tagging, articles, web What is an advertising model?  An advertising model is the strategic use of an advertising medium to reach a specific target audience. An advertising medium is the type of media or vehicle where the advertisement is placed.  Ehrenburg Model (1997) Awareness Let the customer know you exist (Doesn’t have to be just advertising) Trial Curiosity (rather than ‘persuasion’) could lead to trial of product. Reinforcement Provide reassurance in brand. (Role suitable for advertising) Nudging Remind – reinforce - repeat purchase.  The DRIP Model Differentiate (Be different from the competition) Remind (Who are we? What do we stand for?) Inform (What’s new? Features-Benefits) Persuade (Why is it right for you?) The AIDA Model Attention (Get noticed) Interest (What’s in it for me? Problem solving?) Desire (‘Want’ factor, Brand) Action (How do I get it?)  The DAGMAR Model (Defining Advertising Goals for Measured Advertising Results) also known as ‘Hierarchy of Effects’ model  David Bernstein’s VIPS checklist To be effective, an advertising message should be checked to see that it has the following qualities: VISIBILITY IDENTITY PROMISE SINGLEMINDEDNES S  Got Milk Means-End Chain Features Benefits Values Low fat Healthy Self-Respect Wisdom Calcium Healthy bones Comfortable life Wisdom Ingredients Good taste Pleasure Happiness Vitamins Enhanced sexual Excitement ability Fun Pleasure  ROA: Return on Attention  There are three components:  Achieve more of what is valuable and meaningful to me for each unit of time spent  Make the time spent as engaging and enjoyable as possible  Reduce the amount of time spent wherever possible unless it contributes significantly to value received Innovative ways of marketing  Quick response or “QR” code is an easy way to encourage website visitors to make know about a company’s.  Retina trackers/eye-tracking technology (or EEG bands) and brain-wave monitoring, they can make heat maps of where consumers eyes tend to go on a label or a store shelf, or even see what experiences cause the pleasure centers of consumers' brains to light up.  Big Data Intelligence: Data mining from data warehouses, like Twitter Data Grants, which allows research institutions free access to its public and historical data after submitting a proposal.  Lessons Learnt No one knows why some ads work and others don’t. No one can predict for sure which ads will be successful. Models should guide creativity, not restrict it. Human Resource Management Hiring employees is a crucial and often challenging task for small business owners. In service businesses, a bad hire can jeopardize the business's success. Small business owners should recognize that their most valuable assets leave each day at closing time. Interviewing Considered by many employers to be the most critical step in the selection process, the personal interview provides an opportunity to learn more about the applicants. 1.Phone Interview 2.Face-to-Face Interview 3.Behavioral Questions Hiring Assess the employees' attitude, intensity, and passion for the product. Evaluate their skills and abilities to determine if they are a good fit for the role. Additionally, check their communication skills to ensure they can effectively convey ideas and interact with others. Job Analysis The process of gathering all the information about a particular job, including a job description and the job specifications. what is done on the job, how it is done, who does it, and to what degree. It is the foundation on which all other HR activities are based  Job/Position Description - A job description identifies the duties, tasks, and responsibilities of the position. Although a standard format for the job description (often termed the position description) does not exist.  Job Specifications/Selection Criteria - The job specifications indicate the skills, abilities, knowledge, experience, and other personal requirements a worker needs to successfully perform the job