Entrepreneurship and Business Management PDF

Entrepreneurship and Business Management Topic 1. Entrepreneurship Professor: TERESA BITTINI 1  Description of the contents The present subject is divided into 2 d...

Entrepreneurship and Business Management Topic 1. Entrepreneurship Professor: TERESA BITTINI 1  Description of the contents The present subject is divided into 2 didactic units Topic 1. Entrepreneurship Topic 2. Business management 1. Entrepreneurship and entrepreneurial attitudes 1. Strategic management 1.1. Business development concept. 2. Teamwork and Leadership 1.2. Business Definition 3. Planning of the entrepreneurial process 1.3. New business models 4. The Business idea 1.4. Business Vision: Decision Making 4.1 Identifying business opportunities 2. Marketing Management 4.2 Getting updated information 2.1. Market study 2.2. Sales projection 2.3. Marketing strategy https:// 3. Operational management. 4. People management www.educba.com/ 5. Legal management entrepreneurship- 5.1. Types of companies 6. Financial management vs-management/ 6.1. Investment Analysis 6.2. Buy a business or a franchise. Professor: TERESA BITTINI 2  1. Entrepreneurship and entrepreneurial attitudes Professor: TERESA BITTINI 3  What are business ‘inputs’? These are the human, physical and financial resources needed by business to produce goods or services. They are also known as factors of production. Firms will use different combinations of inputs, depending on the product being produced and the size of the business. There are four main inputs: Land –Land itself but all of the renewable and non-renewable resources of nature such as coal, crude oil and timber. Labour – manual and skilled labour make up the workforce of the business. Capital – this consists of the finance needed to set up a business and pay for its continuing operations as well as all of the man-made resources used in production (these include capital goods such as computers, machines, factories, offices and vehicles). Enterprise – this is the driving force of business, provided by risk-taking individuals, which combines the other factors of production into a unit that is capable of producing goods and services. It provides a managing, decision- making and coordinating role. Without this essential input, even very high-quality land, labour and capital, inputs will fail to provide the goods and services that customers need. Professor: TERESA BITTINI 4  What Businesses Need Businesses have many other needs before they can successfully produce the goods and services demanded by customers. This figure shows the wide range of these needs. Professor: TERESA BITTINI 5  An entepreneur is a person who: An entrepreneur is a person who: Launched an idea for a new business Invested some of his/her own savings and capital Accepted responsibility for running the business Accepted the possible risks of failure: Risk-taker  In the long run, they also called as a businessman. An entrepreneur is a person who tries to transform an idea into reality by using available resources. Profesor: Teresa Bittini Llorca 6  Why start a company? In general, in any sector, the reasons for starting a new business include some or all of the following:  Losing a job encourages many people to start a business for themselves, either providing the same product from their former employer or another product, perhaps based on an interest, hobby, vocation, or skill that the entrepreneur has.  Desire for independence: Some people don't like the idea of being told what to do. By creating their own business, they have job flexibility and control over their work life.  A business opportunity idea: Talking to friends or family, it might become clear that there is a niche market, a business opportunity that an entrepreneur could take advantage of.  The desire to earn more money than in a third-party job: Many people establish their own company with the project that they will earn more income working for themselves. Profesor: Teresa Bittini Llorca 7  Entrepreneurship activities Entrepreneurs are able to discover a new profit opportunity and mobilize resources to exploit it. Entrepreneurs serve an important role in enabling the economy to adapt to changing conditions and new possibilities for material improvements by creating new production organizations, and even whole new industries. Starting a business generally requires:  Business concepts,  Ideas,  Service new technology,  People for support,  A process by which a service or product will be delivered,  Money to run all activities. Entrepreneurship Activities Creating or planning a new product. Entering into new markets and strategizing the next marketing move. Finding a new business venture. Taking an idea and executing them. Profesor: Teresa Bittini Llorca 8  Entrepreneurship attitudes and profile Entrepreneurial attitudes  An entrepreneur is a person who takes personal risks and uncertainty of business.  They will be ultimately responsible for the success or failure of the new business initiative.  Entrepreneurs are characterized by creative, innovative thinking and risk-taking.  People who launch their own business must have certain "entrepreneurial" skills in business. Profesor: Teresa Bittini Llorca 9  Entrepreneurship attitudes and profile The personal qualities and skills needed for entrepreneurs to make a success of a new business venture are described below: Innovative  Innovative. The entrepreneur may not be a ‘product inventor’, but they must be able to carve a new niche in the market, attract consumers in innovative ways and Committed present their business as being ‘diferent’. This requires multi- and skilled original ideas and an ability to do things innovatively. motivated  Commitment and self-motivation. A willingness to work hard, a keen ambition to succeed, energy and focus are all essential qualities of a successful entrepreneur.  Multi-skilled. An entrepreneur will have to make the product or provide the service, promote it, sell it and count the money. These different business tasks require Leadership Risk-taker a person with many different qualities (being keen to learn technical skills, an ability to get on with people, and being good at handling money and keeping accounting records). Self- confidence  Leadership skills An entrepreneur has to lead by example and must have a personality that encourages people in the business to follow them and be motivated These skills are also needed for both by them. entrepreneurs and intrapreneurs  Risk-taker Entrepreneurs must be willing to take risks in order to see results. Often the risk they take involves investing their own savings in a new business. Intrapreneurs may also have to take risks but the financial consequences – other than the risk of losing their jobs – are borne by the organization. Profesor: Teresa Bittini Llorca 10  Entrepreneurship vs Management Entrepreneurship is the Management is one of the control and deployment of arts of getting things done resources to create an through and with people in a innovative economic formally organized group. organization for the purpose of profit and growth under the So management is an condition of risk and individual person or group of uncertainty. people that accept responsibilities to run the A successful and sustainable organization. business requires entrepreneurship and To run the business and to innovation. achieve the objective organization, Management Entrepreneurship is a mindset generally brings all the 6M an attitude and taking a together: particular approach to doing Men and Women power, things. Mother nature, Entrepreneurship often Machines, requires creativity and Materials, innovation while addressing a Methods, and Meassurement) new opportunity or concern in a new way. Professor: TERESA BITTINI 11  Entrepreneurship vs Management Entrepreneurship is a An entrepreneur is focused Ownership of an organization process of creating an on a new business venture, stays with the entrepreneur, enterprise by taking a whereas the main focus of whereas management is an financial risk in order to get a management is to manage employee of the profit, whereas the ongoing operation. organization. management is the art of getting things done through proper planning, organizing, Entrepreneurs hold all the directing, and controlling. right to enjoy the complete financial freedom of the The entrepreneur will get An entrepreneur is a risk- business, whereas profit as reward, whereas taker where management Management doesn’t enjoy management will be getting doesn’t take any risk. the complete financial paid for their work. freedom of the business. An entrepreneur is an Management is a wide innovator, whereas range of organization management executes an studies; it includes all innovative idea. whereas Entrepreneurship is One of the parts of management. Profesor: Teresa Bittini Llorca 12   “Entrepreneurship is something that can’t be taught on the other hand management can be taught”.  “An entrepreneur is the backbone of the economic development of countries”. Profesor: Teresa Bittini Llorca 13  2. Team work and leadership Professor: TERESA BITTINI 14  What makes a good leader? WHAT MAKES A GOOD LEADER? A frequently asked question is: What makes a good leader? There are many factors involved in successful leadership but one thing is clear: as technological change accelerates and old industries fade but new ones develop, the best leaders are those who have the foresight and flexibility to be able to adapt their work-place methods to match each company, its vision and the demographics of its workforce. Here are some famous quotes from, or about, leaders around the world: Ted Devine, Insureon: ‘Having a completely open plan office says this about leadership: No walls, no barriers, no hierarchy. Everybody can talk to everybody. Everybody can participate in a decision. We work together, and that’s very important in leadership.’ Sheila Johnson, BET cable network: ‘I want every one of my employees to look at me with dignity and respect. I want to be someone they are proud to work for.’ Jeff Weiner, LinkedIn: As a manager, Weiner takes time to acknowledge relatively small accomplishments by his employees. He often ends a meeting or speech by asking what he could have done better. His workdays are as long as – or longer than – those of his employees. ‘That allows him to be extremely credible as a leader,’ says David Hahn, LinkedIn’s vice president. Tony Hsieh, Zappos: ‘Tony’s imprint is all over the company,’ says Jamie Naughton, a Zappos’ senior manager. ‘Our culture was inspired by how he does business and the people he hires and how we all are as a group. He takes a hands-off approach to leadership that requires effective delegation. He is more of an architect; he designs the big vision and then gets out of the way so that everyone can make the things happen.’ Professor: TERESA BITTINI 15  What makes a good leader? WHAT MAKES A GOOD LEADER? Many studies have been conducted on this point – some argue that leaders are born with natural assets that create an aura or charisma that others This is will find appealing. the essential idea behind trait theory, which suggests that effective leaders are in some ways naturally different from other people. A number of personal characteristics have been identified as being common among effective leaders, including:  a desire to succeed and natural self-confidence that they will succeed  ability to think beyond the obvious – to be creative – and to encourage others to do the same  multitalented enabling them to understand discussions about a wide range of issues affecting their business  incisive mind that enables the heart of an issue to be identified rather than unnecessary details. Professor: TERESA BITTINI 16  Leadership = Inspire people Not all leaders or managers will have all of these important characteristics. Other research is more inclined to support the view that leaders can be trained to adopt the key attributes of good leadership. No great leader ever got anything done without inspiring and empowering others. VIDEO (1m) (https://www.socoselling.com/7- characteristics-of-a-good-leader- how-many-do-you-have/ Profesor: Teresa Bittini Llorca 17  Good vs. Bad Leaders Professor: TERESA BITTINI 18  Yes, you can train leadership! Entrepreneurs may be very keen, willing to work hard and with undoubted abilities in their chosen field – for example, a new restaurant owner may be an excellent chef but may be lacking management skills.  Some learn these skills very quickly once the business is up and running, but this is a risky strategy.  Some entrepreneurs buy in the experience by employing staff with management experience, but this is an expensive option.  It is wrong to think, just because a business is new and small, that enthusiasm, a strong personality and hard work will be sufficient to ensure success. This may prove to be the case, but often it is not.  Potential entrepreneurs are encouraged to attend training courses to gain some of these skills before putting their capital at risk or to seek management experience through employment. Profesor: Teresa Bittini Llorca 19  What are hard truths about leadership? It ain’t easy – Anyone who has ever been in a leadership role knows it’s a complex – and often an exhausting and lonely position. Be careful how fast you rush to climb the leadership ladder. Know how to communicate –It’s Leadership requires being focused on more than one thing at a time: imperative for success that leaders strategy, process, culture – people. Seeing how all these things are know how to communicate. connected takes vision and the ability to see the bigger picture. Communication and remaining open to Successful leadership requires heightened self awareness, expert feedback is how you will learn where communication, and accountability. These aren’t skills we all you can improve. inherently have – or have a desire to learn. You can’t do it all – Great leaders Leadership isn’t management – If you’re in a leadership position, understand their organizational you may likely share many of the same responsibilities as a culture. Leaders need to delegate and manager – truth is the roles are not the same. they need to empower. Truth is many Leadership requires creating a vision of the future and engaging leaders are great visionaries and see people in moving toward it. Leadership connects the big ideas to big picture very well, but if they don’t what matters to the people around them: employees, customers, hire the right people to connect the and stakeholders. Leadership sets direction, builds agreement, dots – and empower them to do so – influences and motivates others, and inspires commitment. then the vision often doesn’t become Management develops specific goals and project plans, allocates a reality. resources, and solves obstacles to execute on the vision and strategy set forth by leadership. Management executes plans to make leaderships future direction a reality.. You are what you do – Leaders must embody the values they want employees to adopt. It’s necessary that leadership serves as role models. Mean what you say and do what you mean. Truth - Exemplify the best and lead by example. Professor: TERESA BITTINI 20  One of the Problems faced by start-ups is Entrepreneurs´ poor management skills: Most entrepreneurs have had some form of work experience, but not necessarily at a management level. This is one of the reasons why many businesses fail during their first year of operation. They may not have gained experience of: leadership skills decision-making skills communication skills marketing, promotion and selling skills. planning and coordinating skills Innovative profile cash handling and cash management skills Profesor: Teresa Bittini Llorca 21  Leadership styles There are five distinct leadership (or management) styles: 1. Autocratic leadership: a style of leadership that keeps all decision-making at the centre of the organization 2. Paternalistic leadership: a type of fatherly style typically used by dominant males where their power is used to control and protect subordinate employees who are expected to be loyal and obedient 3. Democratic leadership: a leadership style that promotes the active participation of workers in taking decisions 4. Laissez-faire leadership (“let them do it) : a leadership style that leaves much of the business decision-making to the workforce – a ‘hands-off’ approach and the reverse of the autocratic style 5. Situational leadership: effective leadership varies with the task in hand and situational leaders adapt their leadership style to each situation The style of leadership is closely related to culture of management. Professor: TERESA BITTINI 22  Leadership styles Professor: TERESA BITTINI 23  Effectiveness of leadership styles Effectiveness of leadership styles There is not one leadership style which is best in all circumstances and for all businesses. The style used will depend on many factors, including:  The training and experience of the workforce and the degree of responsibility that They are prepared to take on.  The amount of time available for consultation and participation  The management culture and business background of the managers, e.g. whether they have always worked in an autocratically run organization  Personality of managers – do they have the confidence and strength of character to lead by persuading and motivating people to follow them or must they hide behind the authority of their role to ‘dictate’ what needs to be done?  The importance of the issue – different styles may be used in the same business in different situations; if there is great risk to the business when a poor or slow decision is taken, then it is more likely that management will make the choice in an autocratic way. Professor: TERESA BITTINI 24  Activity: 30 minutes Even the most ‘democratic’ leader may act in authoritarian ways 1. Outline the when dealing with a disaster that requires a quick response characteristics of an autocratic leadership style. DISASTER AT THE BAKERY 2. Explain why an autocratic leadership The fire at the bakery was a disaster for T & S Provisions Ltd. Eli Tarranto, the style would be chief executive, had been called by the fire services officer, at 3 a.m. ‘The whole suitable in this building is up in flames – we have not been able to save anything,’ he had situation. shouted down the phone. The next day, as Eli waited for his staff to turn up for work outside the burnt-out bakery, he was starting to form a plan. He contacted 3. Discuss the his friend who owned a small competing bakery and the estate agent from whom advantages and he had bought the land for the bakery four years ago. The bakery owner agreed to disadvantages of Eli allow Eli to use one of his spare ovens if he sent his own workers to operate it. Tarranto using an This would give him about 50% of his normal capacity. The estate agent autocratic leadership suggested that Eli rent an empty depot on the other side of town for three style. months. He thought it would take around two weeks to have this equipped as a temporary bakery. When workers started to arrive, Eli gave them clear instructions. They were shocked by the state of the building, but they were willing to help in this crisis. Six of them were sent to the friend’s bakery to start organizing production. Two were sent to the vacant depot and had instructions to start cleaning the premises. The remaining three workers were to help Eli salvage what he could from the office records of the burnt-out building. Before this could start, Eli telephoned all of his major customers – he did not leave it to his sales manager – to explain the extent of the problem and to promise that someTERESA Professor: production would be back on stream as soon as possible. He then BITTINI 25  Activity 2: 15 minutes Identify, in groups, what might be the most appropriate leadership style to adopt in each of the following situations. Explain and justify your answer in each case to the class: a. Training of staff in applying the company’s ethical code of conduct. b. Trying to find a solution to a long-standing quality problem on a bread production line. c. An oil company responding to an environmental disaster resulting from a spillage involving one of its tankers. d. Teams of IT software designers working on major new IT developments. Professor: TERESA BITTINI 26  3. Planning the entrepreneurial process Professor: TERESA BITTINI 27  The iceberg illusion https://www.flickr.com/photos/15664662@N02/19097144604 Professor: TERESA BITTINI 28  The entrepreneurial life cycle The entrepreneurial life cycle repeats itself in businesses of all sizes, from start-ups in a garage to corporate entrepreneurship activities in global Fortune 500 companies. It starts with: an entrepreneur identifies an creates an opportunity organization to pursue it, assembles the required resources implements a practical plan assumes the risks and the rewards all in a timely manner for all involved. Entrepreneurship is a continual problem-solving process. It is like putting together a huge jigsaw puzzle. Professor: TERESA BITTINI 29  The entrepreneurial life cycle The Seven Stages in the Entrepreneurial Life Cycle Stage 1. Opportunity Recognition: This “gestation” period is quite literally the “pre- start” analysis. It often occurs over a considerable period of time ranging from one month to ten years. At this stage it is important to research and understand the dimensions of the opportunity, the concept itself, and determine how to decide whether it is attractive or unattractive. (SMART Objectives) Stage 2. Opportunity Focusing: This is a “sanity check,” a go/no-go stage gate because it fleshes out shaky ideas and exposes gaping holes. It is important to include objective, outside viewpoints because different people can investigate the same opportunity and come to opposite conclusions. Stage 3. Commitment of Resources: this stage actually starts with developing the business plan. There is a huge difference between screening an opportunity and researching and writing a business plan. Stage 4. Market Entry: Profitability and success define the market entry stage. The resources were correctly allocated according to the business plan, and the first sales were made. If the business model was profitable, reasonable objectives were met, and the venture is on track for attaining true economic health, then the entrepreneur can chose between a capital infusion for growth or remaining small with self-financing. Professor: TERESA BITTINI 30  The entrepreneurial life cycle Stage 5. Full Launch and Growth At this stage, the entrepreneur needs to choose a particular high-growth strategy. Upon considering such alternatives, quite often the entrepreneur chooses to remain a small business and never passes this stage or perhaps opts to remain operating as a sole proprietor, or the venture could remain small for the simple fact that not all small ventures can or will become big companies. Stage 6. Maturity and Expansion Now the venture is a market leader at cruising altitude. The growth becomes a natural extension of the venture through professional management practices. This professional management team is implementing the venture´s growth strategy through global expansion, acquisitions, and mergers as cash is plentiful and inefficiencies are completely flushed out. Stage 7. Liquidity Event This harvesting stage is focused on capturing the value created in the previous stages through a business exit. Typical exits are an initial public offering (IPO) or being acquired by a larger publicly traded corporation. We know from experience that the opportunity to exit successfully from a venture is a significant factor in the entrepreneurial life cycle, both for the entrepreneur and for any investors providing investment capital along the way. Source: Roadmap to Entrepreneurial Success (https://news.gcase.org/roadmap-to-entrepreneurial-success/ Professor: TERESA BITTINI 31  The entrepreneurial life cycle Sourcing capital (finance) Once the entrepreneur has decided on the business idea or opportunity, the next task is to raise the necessary capital. This will come from various sources but the business owner/entrepreneur will almost certainly have to use some of their own savings in setting up the business.  Friends and family might also be asked for financial support.  Banks may provide loan finance or an overdraft facility – but bank officials will want to check the business plan contents very rigorously.  Venture capitalists may be prepared to invest if the business idea is novel, can be protected or patented and offers significant profit potential.  Government grants might be available – perhaps as part of a policy to reduce unemployment by encouraging people to set up new businesses. Professor: TERESA BITTINI 32  The entrepreneurial life cycle The path that leads a company to decide to go public is linked to the moment of its economic-business cycle and its capital needs. The financing line explains it graphically: Through the Stock Market, companies access financing that is not only flexible but also continuous, since once it enters the stock market, it can go back to investors through capital increases. You can thus obtain financing adapted to your temporary needs. Professor: TERESA BITTINI 33  Problems faced by start-ups Even if an entrepreneur has all the qualities listed before, and initial steps are given carefully, success with a new business can never be guaranteed. Many businesses fail during their first year of operation. The most common reasons for this are discussed below. 1. Competition This is nearly always a problem for new enterprises unless the business idea is unique. More generally, a newly created business will experience competition from older, established businesses with more resources and market knowledge. The entrepreneur may have to offer better customer service to overcome the cost and pricing advantages of bigger businesses. 2. Lack of record-keeping Accurate records are vital to pay taxes and bills and chase up debtors. Many entrepreneurs fail to pay sufficient attention to this as they either believe that it is less important than actually meeting customers’ needs or they think they can remember everything, which they could not possibly do after a period of time. For example, how can the owner of a new, busy florist´s shop remember: when the next delivery of fresh flowers was booked for? whether the flowers for last week’s big wedding have been paid for? if the cheque received from an important customer has been paid into the bank yet? how many hours the shop assistant worked last week? Professor: TERESA BITTINI 34  Problems faced by start-ups 3. Lack of finance and working capital In an International Labour Organisation (ILO) survey of new business start-ups, the problem of finance came at the top of the list of replies from entrepreneurs regarding the main difficulty. Why is obtaining finance such a major problem for entrepreneurs?  Lack of sufficient own finance – many entrepreneurs have very limited personal savings, especially if they are setting up their own business because they were previously made redundant.  Lack of awareness of the financial support and grants available.  Lack of any trading record to present to banks as evidence of past business success − a trading record would tend to give a bank confidence when deciding whether to lend money for a new venture.  A poorly produced business plan that fails to convince potential investors of the chances of a business’s success.  Running short of capital to run day-to-day business affairs is the single most common reason for the failure of new businesses to survive in the first year. Without sufficient working capital, the business may be unable to buy more stocks or pay suppliers or offer credit to important customers. Professor: TERESA BITTINI 35  Problems faced by start-ups 4. Changes in the business environment Setting up a new business is risky. Not only are there the problems and challenges referred to before, but there is also the risk of change, which can make the original business idea much less successful. New businesses may fail if any of the following changes occur, turning the venture from a successful one to a loss-making enterprise: new competitors legal changes, e.g. outlawing the product altogether economic changes that leave customers with much less money to spend technological changes that make the methods used by the new business old- fashioned and expensive. This list of changes could, no doubt, be added to, but even these four factors indicate that the business environment is a dynamic one, and this makes owning and running a business enterprise very risky indeed. Professor: TERESA BITTINI 36  Business plans business plan: The contents of a typical business plan are: A written document that  The executive summary − an overview of the describes a business, its new business and its strategies. objectives and its  Description of the business opportunity − strategies, the market it is in and its financial details of the entrepreneur; what is going to be forecasts sold, why and to whom.  Marketing and sales strategy − details of why the entrepreneur thinks customers will buy what the business plans to sell and how the business aims to sell to them.  Management team and personnel − the skills and experience of the entrepreneur and the staf he/she intends to recruit.  Operations − premises to be used, production facilities, IT systems.  Financial forecasts − the future projections of sales, profit and cash flow, for at least one year ahead. Professor: TERESA BITTINI 37  Case: a typical business plan summary for a new business venture Source: Business and Management for the IB Diploma Peter Stimpson and Alex Smith. Professor: TERESA BITTINI 38  Importance of business plans Importance of business plans Users of business plans  Business plans are most important when Business plans may be of real benefit to the setting up a new business, but they stakeholders of new businesses: should be referred to and updated when The plan allows potential investors in the important strategic choices are being new business – and the bank – to make a made too. judgement about the viability of the idea and  The main purpose of a business plan for a the chances of the owners making a success of new business is to obtain finance for the it. start-up. Potential investors or creditors The financial forecasts in a business plan can will not provide finance unless clear act as budgets and control benchmarks for the details about the business proposal have internal stakeholders such as business been written down. managers.  The planning process is very important Updated versions of the plan can be used to too. If an entrepreneur went into a new apply for additional funding, to attract business – even if no external finance was additional partners or to supply data for the required – without a clear sense of experts if a stock market flotation becomes purpose, direction, marketing strategies an option. and what employees to recruit, the Employees will find that planning helps chances of success would be much identify specific objectives and targets and reduced. gives focus to their work, which aids  The financial and other forecasts motivation. contained in the plan can be used as the Suppliers may be able to tell from the parts targets that the business should aim for. of the business plan that are communicated externally whether it is worthwhile establishing a long-term trading relationship with the Professor: TERESA BITTINI business. 39 4. The Business idea 4.1 Identifying business opportunities. 4.2 Getting updated information Professor: TERESA BITTINI 40  Identifying business opportunities By continually reinventing your company and seeking out potential growth areas, you will keep your enterprise moving forward. But how can you recognize business opportunities when they are staring you in the face? https://www.marcuslemonis.com/business/identifying-business-opportunities Professor: TERESA BITTINI 41  First step in starting a business or enterprise Identifying market opportunities 1. Customer segments Many people say that they want to work Being clear about how to define your for themselves, but they then don not target audience can mark the make the leap into entrepreneurship success or failure of a project. successfully because they have not been Customers must be the center of any able to identify a profitable market type of business, they are the reason opportunity. for being of an organization. The original idea for most new Customers do not have to adapt to businesses comes from one of several your value proposition, it is you who sources including: must adapt the value proposition of  Own skills or hobbies your business to their needs and  Previous employment experience desires.  Franchising conferences and  So the first step will be to be exhibitions offering a wide range of clear about which customer new business start-up ideas. segment you want to target.  Small-budget market research: It No matter what your value might indicate gaps in local markets proposition is, if it does not satisfy that could be profitably filled by the the needs of any customer segment, entrepreneur (the use of the internet) your business will be destined to fail. Professor: TERESA BITTINI 42  First step in starting a business or enterprise Your value proposition aims at building a customer base To survive, a new firm must establish itself in the market and build up customer numbers as quickly as possible. The long-term strength of the business will depend on encouraging customers to return to purchase products again and again.  The value proposition: must be understood as the set of benefits that we are going to bring to our customers with our products and services. It is the reason why customers will choose us as an alternative over the competition. Key questions are: What problem are we helping to solve? What differential value do we offer our clients? Professor: TERESA BITTINI 43  First step in starting a business or enterprise Product differentiation What Is Product Differentiation? Product differentiation is the key aspect or aspects that distinguish a company's products or services from the competition. Successful product differentiation leads to brand loyalty and an increase in sales. A product differentiation strategy involves identifying and communicating the unique qualities of a product or company while highlighting the distinct differences between that product or company and its competitors. Product differentiation goes hand in hand with developing a strong value proposition so that a product or service is attractive to a target market or audience. If successful, product differentiation can create a competitive advantage for the product's seller and ultimately build brand awareness. Many small businesses try to encourage this by offering a better service than their competitors. This better service might include:  Personal customer service  Knowledgeable pre- and after-sales service  Providing for one-of customer requests that larger firms may be reluctant to provide for. Professor: TERESA BITTINI 44  First step in starting a business or enterprise KEY TAKEAWAYS  Product differentiation depends on consumers' attention to one or more key benefits of a product or brand that make it a better choice than similar products or brands.  The elements of differentiation include product design, marketing, packaging, and pricing.  A product differentiation strategy should demonstrate that a product has all the features of competing choices but with additional exclusive benefits no one else offers.  Companies gain a competitive advantage and market share through product differentiation.  Product differentiation increases market competition and controls prices for consumers. Professor: TERESA BITTINI 45  Next Steps to start a business or enterprise Determining other resources, planning key activities and minimizing costs. In addition to financial resources, there are three other key types of resources:  Humans. Here you must take into account all the people that you will need to have available in your organization.  Physical. You must specify the location, facilities and machinery that you have available.  Intellectuals. This is where patents, software, etc. would come in.A suitable location is vital if the start-up business intends to sell directly to consumers. This raises the problem of costs. Perhaps the most important consideration when starting up a new business is the need to minimize fixed costs. When finance is limited, it is very important to try to keep the break-even level of output – the output level that earns enough revenue to cover all costs – as low as possible. This will greatly increase the chances of survival. Professor: TERESA BITTINI 46  Getting updated information The importance of external influences on business performance and decision-making.  The risk of change, which can make the original business idea much less successful.  Businesses depend for their survival on understanding and responding to external factors that are beyond their control.  New businesses may fail if any of the following changes occur, turning the venture from a successful one to a loss-making enterprise: New competitors Legal changes, e.g. outlawing the product altogether Economic changes that leave customers with much less money to spend Technological changes that make the methods used by the new business old-fashioned and expensive. Many of the factors are ‘constraints’ because they may limit the nature of decisions that business managers can take. The legal requirements imposed by governments, on environmental pollution for example, are one of the most obvious constraining influences on business activity. However, external influences can also create opportunities and enable a business to become even more successful – introducing new technology in advance of rival firms is one example. Professor: TERESA BITTINI 47  The Steeple Analysis STEEPLE analysis: an acronym standing for social, technological, economic, environmental, political, legal and ethical external factors that impact on business. It refers to a framework for analyzing the external environmental factors affecting business objectives and strategies. This is an outline of the STEEPLE factors: Social: Social factors include population size and structure, lifestyle, age groups and education levels. Technological: Factors include the state of the technological advancement and introduction of new technologies Economic: Factors such as the GDP growth rate, inflation rates, interest rates, exchange rates Environmental: Includes weather and climate of the region, the flora and fauna of the region, environmental pressure group activity Political: Factors such as the type of government that exists and its ideology as shown by its attitude to free markets, imposition of tariffs, business incentives offered and the stability of the government Legal: The legal factors include any law influencing business activity, e.g. competition law, health and safety at work, consumer protection, employee protection Ethics: The general code of ethics followed by most people in the country, and the tendency of people to be ethical. Professor: TERESA BITTINI 48  The Steeple Analysis Managers undertake STEEPLE analysis to assess the importance of the major external influences and future changes in them on their organization´s future activities. It is particularly useful when a business is planning new strategies such as entering new markets or developing new products. STEEPLE analysis may be conducted regularly to allow a business to review its objectives and strategies in the light of external changes. Some businesses may only do this form of analysis as a one-of instance when a major decision needs to be taken. This is likely to be less effective than regular STEEPLE reviews which monitor changes to the external environment. It is the responsibility of managers to decide which of the key STEEPLE factors are relevant to their business. The analysis itself can be undertaken by managers alone or with the participation of other workers. I t is often combined with SWOT analysis which assesses internal factors that could influence future business objectives and strategies. Professor: TERESA BITTINI 49  The entrepreneur from the legal point of view The term entrepreneur comes from the French term for "enterpriser" or "one who undertakes”. The New York State Society of Certified Public Accountants offers t he following definition of Entrepreneur: “Person who takes on the risks of starting a new business”. (https://legaldictionary.lawin.org/entrepreneur/) " An entrepreneur is a person who creates a new opportunity to make substantial profits and then takes the initiative in exploiting this opportunity, typically by organizing a new business firm or expanding an existing business. (https://definitions.uslegal.com/e/entrepreneur/) Profesor: Teresa Bittini Llorca 50  THE BUSINESS MAIN TARGET: PROFITS OR VALUE CREATION? A company is an organization that uses resources to From a classical satisfy the needs of customers, providing the product or perspective, decisions service they demand. in the company are In all its stages, business activity implies adding value to reduced to determining resources and making them more desirable by the final the productive factors customer. to be used and the For the company to remain in the market, it will be quantities to be necessary to generate wealth, therefore the objective of produced, with the aim the company must be to obtain profits. of maximizing profits. CRITICISM TO THIS PERSPECTIVE:  The concept of benefit is imprecise. When we speak of profit, we can refer to profit in absolute terms, that is, in monetary units, (income-expenses), or to profit in relative terms, that is, measured as a percentage (%) on the invested capital, which is much more representative.  It does not consider the associated risk, an important factor to take into account  It does not consider the term in obtaining the benefit and it must be considered that maximizing short-term benefits would have consequences for the future benefits of the company.  It must also be considered that the objective of maximum profit in the neoclassical model is based on a perfect market approach, which does not currently exist in reality. Profesor: Teresa Bittini Llorca 51  ENTERPRISE VALUE MEASUREMENT Currently the aim of MAXIMUM PROFIT has been replaced by the VALUE CREATION OBJECTIVE: The increase in VALUE (wealth) for the company's SHAREHOLDERS.  The ENTERPRISE VALUE CREATION is measured based on the profitability of the assets, which in turn will be based on the relation between the benefit obtained and the financial resources used to obtain it.  THE VALUE CREATION INDICATOR is defined as the ratio between the market value of the company's equity and the equity book-value: 𝑬𝒏𝒕𝒆𝒓𝒑𝒓𝒊𝒔𝒆 𝑽𝒂𝒍𝒖𝒆 𝑪𝒓𝒆𝒂𝒕𝒊𝒐𝒏 ( 𝑬𝑽 )=¿ ¿  The book value of a company’s equity reflects the historical operating and financing decisions of its management.  The market value of the company’s equity reflects these decisions as well as investors’ collective assessment and expectations about the company’s future cash flows generated by its positive net present value investment opportunities Professor: TERESA BITTINI 52  ENTERPRISE VALUE MEASUREMENT Depending on the result of the EV, three situations can occur: EV > 1: The ratio is higher than one, in this case the company creates value, since the market is valuing the company´s equity above its book value, which implies that it considers that the company has good expectations in the future. EV < 1: the ratio is lower than one, in this case the company destroys value, since the price of the shares will be below their book value and will imply a negative perception of the shareholders about the future of the company. EV = 1: If the ratio is equal to one, the company at that moment neither creates nor destroys value and its evolution would have to be followed to establish a conclusion. The stock share-price does not have to coincide with the theoretical book value of the shares. But the price of a share does not always reflect its fair value either: Shares can be overvalued or undervalued with respect to "Fair Value" or intrinsic value as investors measure a stock's ability to generate future profits. Profesor: Teresa Bittini Llorca 53  Q&A Professor: TERESA BITTINI 54