Chapter 1 Entrepreneurs Recognize Opportunities Entrepreneurship Chapter 1 Entrepreneurs Recognize Opportunities Mariotti: Entrepreneurship

What Is Business? Business—buying and selling of products and services. Product—exists in nature or is made by human beings. Service—work that provides time, skills, or expertise in exchange for money. Marriotti: Entrepreneurship

What Is an Entrepreneur? Employees—earn their livings working for someone else’s business. Entrepreneurs—earn their livings starting, owning, and working for their own businesses. Marriotti: Entrepreneurship

Entrepreneurs Add Value to Scarce Resources All resources (wood, coal, oil, etc.) that cost money are “scarce.” Entrepreneurs add value to scarce resources by shifting them from areas of lower to higher productivity. Marriotti: Entrepreneurship

The Economic Questions What should be produced? When will it be produced? How will it be produced? Who will produce it? Who gets to have what is produced? An economy is a country’s financial structure. It is the system that produces and distributes wealth. Marriotti: Entrepreneurship

Profit Is the Signal Profit—amount of money earned by a business left over after bills are paid. Profit signals that an entrepreneur is adding value to scarce resources. Entrepreneurs try to make choices (trade-offs) that will increase profit. Marriotti: Entrepreneurship

Why Be an Entrepreneur? Control over time Fulfillment Creation/Ownership Control over Compensation -salary -wage -dividend -commission Control over Working Conditions Marriotti: Entrepreneurship

Costs and Benefits of Entrepreneurship Business failure Obstacles Loneliness Financial Insecurity Long Hours/Hard Work Benefits Independence Satisfaction Financial Reward Self-Esteem Marriotti: Entrepreneurship

Cost/Benefit Analysis Costs—money and time you will invest Benefits—money you will earn, knowledge and experience you will gain Cost/Benefit Analysis—list costs and benefits in order to make decisions that are not emotional. Opportunity Cost—cost of your next-best investment For Cost/Benefit Analysis to be accurate, be sure to include your opportunity cost. Marriotti: Entrepreneurship

Sources of Opportunity Use new technology to produce a new product. Use an existing technology to produce a new product. Use an existing technology to produce an old product in a new way. Find a new source of (cheaper) resources. Develop a new market for an existing product. Marriotti: Entrepreneurship

Business Opportunity= Idea + 4 Characteristics Attractive to customers Will work in your business environment Can be executed in existing window of opportunity Entrepreneur has resources and skills to create the business Marriotti: Entrepreneurship

5 Roots of Opportunity Problems Changes Inventions Competition Technological advances Where others see problems, entrepreneurs recognize opportunities. Marriotti: Entrepreneurship

Use SWOT to Evaluate Business Ideas Strengths Weaknesses Opportunities Threats Marriotti: Entrepreneurship

2 Classes of Opportunities 1. External—generated by outside circumstances noticed by the entrepreneur. 2. Internal—generated by an interest or hobby of the entrepreneur. Marriotti: Entrepreneurship

Respect Intellectual Property Do not sell counterfeit knockoffs of popular brands. Do not take graphics, music, or content from the Web without permission. Know the source of goods you sell, to avoid the risk of selling stolen property. Marriotti: Entrepreneurship

7 Rules for Building a Successful Business Recognize an opportunity Evaluate it with critical thinking (SWOT) Build a team Write a business plan Gather resources Decide ownership Create wealth Marriotti: Entrepreneurship

What Is a Business Plan? A document that you can use to start and operate your business. A document you can show investors and bankers to raise money (capital) for your business. Marriotti: Entrepreneurship

Creating Business from Opportunity: The Economics of One Unit Entrepreneurship Chapter 2 Creating Business from Opportunity: The Economics of One Unit Mariotti: Entrepreneurship

Market A group of people who may be interested in buying a particular product or service. Marriotti: Entrepreneurship

4 Types of Business Manufacturing—makes tangible product Wholesale—buys in bulk from manufacturer; sells smaller quantities to retailers Retail—sells one piece at time to consumers. Service—sells time/expertise to consumers. Marriotti: Entrepreneurship

The Business Definition The offer—what will you sell? Target market—to whom will you sell? Production and delivery—how will you sell? Before you can start your business, you must define it. Marriotti: Entrepreneurship

Competitive Advantage What can you do better than the competition that will draw customers to your business? Think about what your customers need. You have unique knowledge of your market! Marriotti: Entrepreneurship

Competitive Strategy Business definition + competitive advantage = competitive strategy Strategy: plan for outperforming the competition Tactics: ways to carry out strategy Marriotti: Entrepreneurship

Recipe for Success Understand the needs of your customers. Offer them a sustainable competitive advantage. Deliver a product or service that meets customer needs at a fair price. sustainable = can be kept going over time Marriotti: Entrepreneurship

6 Factors of Competitive Advantage Quality Price Location Selection Service Speed/turnaround Marriotti: Entrepreneurship

Naming Your Business Keep it simple. Don’t use your last name. The best name is one that tells customers what the company does, sells, or makes. Marriotti: Entrepreneurship

What Are Your Core Beliefs? Beliefs you will use to guide your business. Example: My restaurant will support local organic farmers. Core beliefs affect: -materials you choose -prices you charge -how you treat customers Marriotti: Entrepreneurship

What Is Your USP? Unique Selling Proposition—what attracts customers away from the competition and toward your business? Compare what your business offers to what competitors offer. Are you at a cost advantage or disadvantage? Marriotti: Entrepreneurship

Check Out the Competition! The offer Target market Production and delivery capability Marriotti: Entrepreneurship

Mission Statement A concise statement of: Your strategy Your business definition Your competitive advantage Marriotti: Entrepreneurship

Entrepreneurs Use Profits: To pay themselves To expand their businesses To start or invest in other businesses Gross profit = price – cost of goods sold Marriotti: Entrepreneurship

Define Your Unit of Sale Manufacturing—one order (e.g., 100 watches) Wholesale—a dozen (e.g., 12 watches) Retail—one item (e.g., 1 watch) Service—one hour of time (one hour mowing) or one completed task (one lawn mowed) Combination—average sale per customer Marriotti: Entrepreneurship

Average Sale Per Customer – average cost of sale per customer Average gross profit per customer Marriotti: Entrepreneurship

Unit of Sale as a Combination of Different Items Marriotti: Entrepreneurship

Cost of Goods Sold (COGS) COGS = cost of labor and materials required to make one additional unit COSS (cost of services sold) = cost of labor and materials required to provide one additional unit of service Marriotti: Entrepreneurship

Economics of One Unit (EOU) Method for seeing if a business can be profitable If one unit of sale is profitable, the whole business is likely to be profitable. Selling price per unit – COGS per unit = Gross profit per unit Marriotti: Entrepreneurship

Economics of One Unit (EOU) —Manufacturing Marriotti: Entrepreneurship

Economics of One Unit (EOU) —Wholesale Marriotti: Entrepreneurship

Economics of One Unit (EOU) —Retail Business Marriotti: Entrepreneurship

Economics of One Unit (EOU) —Service Business Marriotti: Entrepreneurship

Economics of One Unit (EOU) —Example Marriotti: Entrepreneurship

The Entrepreneur’s Strategy: Start a business with a profitable EOU Hire others to create the units Increase volume of units being sold This frees the entrepreneur to start new businesses Result: The entrepreneur creates jobs and wealth. Marriotti: Entrepreneurship

Chapter 3 What Is Marketing? Analyzing Customers and Your Market Entrepreneurship Chapter 3 What Is Marketing? Analyzing Customers and Your Market Mariotti: Entrepreneurship

What Is Marketing? Satisfying the customer at a profit The business function that identifies your customers and their wants and needs The engine that drives ALL business decisions Marriotti: Entrepreneurship

Features Create Benefits Feature—fact about a product or service Benefit—what the feature can do to meet a customer’s need Smart marketers emphasize benefits, not features. Marriotti: Entrepreneurship

Visualize Your Customer Use market research to find out: Who your customers are -income -age -location Where you can find them What they want and need Marriotti: Entrepreneurship

4 Types of Market Research Surveys and focus groups—interview people about your business General research—libraries, internet, chamber of commerce Statistical research—facts presented as numbers. Consumer statistics are called demographics. Industry research—trends, growth, etc. Marriotti: Entrepreneurship

Research Market Before Opening Your Business Be open to criticism Focus your brand—find the one benefit you want to market to customers Ford’s Edsel—lacked focus, too many features, failure Ford Mustang—tightly focused on target market (20–30-year-olds), success Marriotti: Entrepreneurship

Marriotti: Entrepreneurship

Build Your Brand Business name Logo Reputation Brand personality Communicate brand to target market Marriotti: Entrepreneurship

7 Ways to Build a Great Brand Provide high-quality product/service Maintain high ethical standards Define product/service clearly Treat employees well Make ads positive and informative Associate company with a charity Be involved in community Marriotti: Entrepreneurship

Market Segmentation Market segment = consumers who have similar response to a certain type of marketing Segmentation methods Geographic Demographic Psychographic Behavioral Marriotti: Entrepreneurship

Marriotti: Entrepreneurship

Product Life Cycle (PLC) 4 stages Introduction Growth Maturity Decline Where is your product/service in the PLC? Is your market saturated? Marriotti: Entrepreneurship

Marriotti: Entrepreneurship

Introduction Stage – This stage of the cycle could be the most expensive for a company launching a new product. The size of the market for the product is small, which means sales are low, although they will be increasing. On the other hand, the cost of things like research and development, consumer testing, and the marketing needed to launch the product can be very high, especially if it’s a competitive sector. Growth Stage – The growth stage is typically characterized by a strong growth in sales and profits, and because the company can start to benefit from economies of scale in production, the profit margins, as well as the overall amount of profit, will increase. This makes it possible for businesses to invest more money in the promotional activity to maximize the potential of this growth stage. Marriotti: Entrepreneurship

Maturity Stage – During the maturity stage, the product is established and the aim for the manufacturer is now to maintain the market share they have built up. This is probably the most competitive time for most products and businesses need to invest wisely in any marketing they undertake. They also need to consider any product modifications or improvements to the production process which might give them a competitive advantage. Decline Stage – Eventually, the market for a product will start to shrink, and this is what’s known as the decline stage. This shrinkage could be due to the market becoming saturated (i.e. all the customers who will buy the product have already purchased it), or because the consumers are switching to a different type of product. While this decline may be inevitable, it may still be possible for companies to make some profit by switching to less-expensive production methods and cheaper markets. Marriotti: Entrepreneurship

Market Positioning Distinguish your product/service from others offered to your market segment. Goal: clearly communicated how your product/service differs from competitors. Positioning statement: Ex: (General Motors) is the (leading US automobile maker) that (provides affordable cars) to (American families) Marriotti: Entrepreneurship

Marriotti: Entrepreneurship