1 Finding an Opportunity Week 2 – October 12, 2004 FM20731 – Entrepreneurship

2 Course Evaluation & Technology Grading –40%: Class Participation (including attendance) –10%: Weekly Quizzes on Reading –20%: Midterm Exam –30%: Project Technology Needed: –Word Processing –Spreadsheet –Graphics and PowerPoint

3 Attendance Policy Two absences = one full grade drop A third absence = an additional grade drop Four absences = Failure NOTE: –There are NO excused absences. –2 lates and/or early departures = 1 absence. I WILL FAIL YOU IF I HAVE TO!

4 Cellphone Policy OK if it rings –I don’t expect you to remember to turn it off BUT! –Don’t answer your phone in class! –Don’t step into the hall to talk Also –No text messaging

5 Today’s Class The entrepreneurial team –Discuss Startup.com Recognizing opportunity Buying an existing business Franchises Other alternatives to new business

6 The Startup Classic startup company –innovative idea –develops into a high growth company Qualities of a good startup company –Strong leadership from the main entrepreneur –Solid entrepreneurial team Complementary talents Outstanding teamwork –Skill and ingenuity to find and control resources –Financial backing to chase opportunity

7 The Entrepreneurial Team An entrepreneurial leader –Learns and teaches—faster, better –Deals with adversity, is resilient –Exhibits integrity, dependability, honesty –Builds entrepreneurial culture and organization

8 The Entrepreneurial Team Quality of the Team –Relevant experience and track record –Motivation to excel –Commitment, determination, and persistence –Tolerance of risk, ambiguity, and uncertainty –Creativity –Adaptability –Opportunity obsession –Leadership –Communication

9 Desirable & Acquirable Attitudes/Behaviors Commitment and determination Leadership Opportunity obsession Tolerance of –Risk –Ambiguity –Uncertainty Creativity, self-reliance, and adaptability Motivation to excel

10 The Timmons Model of the Entrepreneurial Process Opportunity (2) Resources (4) Team (3) AmbiguityExogenous forces Capital marketsUncertainty Founder (1) Creativity Leadership Communication Business Plan Fits and gaps

11 Enlightened Serendipity Being in the right place At the right time, Recognizing it, and Acting upon it, APPROPRIATELY and PASSIONATELY!!! I.E. Luck = Opportunity + Preparation

12 What Is An Entrepreneur? ENTREPRENEURSHIP The pursuit of opportunity through innovation, creativity and hard work without regard for the resources currently controlled.

13 What Is An Opportunity? A belief that achievement of that state is possible Recognizing a desired future state involving growth or change OPPORTUNITYOPPORTUNITY

14 Opportunity How do we search for the right venture? –Never a straightforward task –Often accidental –Difficult to find deliberately –Can be driven to financial ruin trying ideas Let’s think about –The deliberate search –The evaluation process –Other sources of ideas

15 The Deliberate Search Most appropriate way of finding a venture? –Systematic –Five clearly defined steps: Contact people in the know Read appropriate publications Do Market Research Use Government data Joint-venture with large companies –Have more demands than time to fill them

16 Contact the Right People Ask others to inform you of good ideas –Contact technology transfer organizations –Patent attorneys –Investment bankers –Venture capital firms Talk to people –Especially marketing, sales, service Talk to customers, see what they need

17 People are Most Important Ideas come from people People struggle with the unfulfilled need Customers are people Designers are professional idea people Practice makes better in idea searching

18 Read the Printed Word Study your desired industry Read the appropriate publications: –Trade Indexes in the area –local business newspaper every day –Annual reports of industry public companies –Purchase professional reports Look for required improvements

19 Research the Market What do people want, nobody is producing Ask buyers what they have trouble finding Determine what’s missing in trade catalogs Ask store managers –What do customers want but can’t buy Attend trade shows –Ask people about what may be needed –Good stimulation for new ideas!!

20 Government, a Goldmine of Data Examine industry statistics –Select high-growth areas Consider legislation’s effect on business –May create needs for businesses to comply

21 Brainstorming Great way to generate ideas As many ideas as possible Everyone participates Write down all ideas presented Spark off of others’ ideas

22 Brainstorming Rules No criticisms or judgments –Don't even groan, frown, or laugh –All ideas are equally valid at this point All ideas are welcome –Silly & far out OK! –Be creative –The more ideas the better Absolutely no discussion –Ideas will be discussed after brainstorming is complete

23 Brainstorming Family (size matters - more is better) People with the right education/experience People who are in the idea search business: –Designers –Advertising people –Promotional planners –Inventors –Other entrepreneurs –The right corporate people Sales & marketing Service

24 The Search Criteria Criteria to evaluate ideas What do you want out of the effort –There will be sacrifices and costs Weight the criteria to reflect importance Depend on individual circumstances Covers several basic issues

25 Sample Criteria Amount of time required Flexibility in hours worked Income potential Geographical location Financial requirements Personality preference Personal satisfaction Product or Service Market Issues

26 Other Sources of Ideas Besides deliberate thinking –Unplanned “Eureka!" ideas Hard to predict –Trends around you More about this in the next few slides –Opportunity from “lack” you see Always pay attention to everyday problems Best ideas solve problems –Government action New programs, incentives War

27 Consider Current Trends These are examples, trends always change –Aging population –Energy costs rising –Marital status changes –Families without children –Leisure time growing –Health & physical fitness –Personal care –Financial planning

28 Trend: Aging Population Aging population: –Major shift to middle age. –The "big generation" ( ). –Fastest growing age group is 75+. –60 year old now = year olds then Looks, attitude, health, thinking, etc. –Affluent Over 100% asset growth in past ten years –The WOOPies are often commercially ignored (Well off older people)

29 Trend: Marital Status & No Children Marital status changes: –Living alone Divorced, separated, widows/ers –Later marriages –A large number of singles –Career women –Families without children: Double income - no children (DINCs) Large disposable income Lots of time; No ties.

30 Trends: Personal Care Enormous growth in demand Enormous profit margins possible Packaging/marketing are the real expense Looks are very important to everyone –E.g. N/A sells $30,000,000 in face cream daily!

31 Trends: Health Health and physical fitness –Very popular –Major opportunities available –Recreation (1,000 new golf courses/year) –Tennis, squash, skiing grows –Cigarettes, junk food, liquor declining

32 Adoption of New Technology Time until adoption by 25% of the Population –Household electricity (1873) 46 years –Telephone (1875) 35 years –Automobile (1885) 55 years –Airplane travel (1903) 54 years –Radio (1906) 22 years

33 Adoption of New Technology Time until adoption by 25% of the Population –Television (1925) 26 years –Videocassette recorder (1952) 34 years –Personal computer (1975) 15 years –Cellular phone 13 years –World Wide Web 7 years

34 Getting into Business Buy an Existing Business Open a Franchise Start a New Business –We’ll discuss next week

35 Buying a Business Many businesses are for sale Consider why seller is selling –Struggling for some reason? If they are struggling, can you do better? –If so, could be big opportunity

36 Pluses of Existing Business: Less Risk Fewer surprises Fewer problems to discover Fewer mistakes to make Less likely to have missed something May already be generating profit There may be a fatal flaw in a raw startup that you won’t discover until you try!

37 Pluses of Existing Business: Less Effort Saves pure startup time and efforts –Establishing business entity –Finding location –Legal issues –Insurance –Marketing – logos, ads, signs, etc. –Hiring staff –Setup payroll –Much more!

38 Pluses of Existing Business: Low Price May find an under-priced business Seller may be “motivated” –No longer involved in business –Failing health/retiring –Already has other plans Seller may not value properly –Examine books to determine your value External conditions may be depressed

39 Minuses of Existing Business Environment –May face factors that are beyond control –E.g. market is too small, too much competition –Bad location Internal Problems –Why do we see “Under new management”? –Bad reputation –Bad relationship with employees Loss of existing owner could be difficult –Esp. if professional practice

40 Finding a Business Businesses on the market –Business brokersBusiness brokers –Classified AdsClassified Ads Businesses not on the market –Ask professionals if they know who might sell Bankers, lawyers, accountants, etc. –Approach owners of appropriate businesses Ask if they know of any for sale - not if they’ll sell They’ll tell you if they’re interested

41 Pricing a Business Determine what it’s worth to you –Value of assets Book value: original cost minus depreciation –E.g. Cost $8K 5 yrs ago, depreciated $800/yr = $4K Replacement value: cost to repurchase –E.g. $10,000 to buy new Liquidation value: revenue if sold –E.g. not much market: $500 Appraised value: determined by expert –E.g. $1500 – probably fairest –The intangible asset: Goodwill –Value of liabilities – how much is owed

42 Pricing a Business –Future earnings How long will the business exist? How much will it generate per year? Don’t forget the time value of money! –Would you rather have $50 today or $100 in seven years? »Answer: It doesn’t matter! They’re equivalent –So if the situation is this: – Is it worth $250,000? No! $194,483 (at 9% interest rate)

43 Homework Read Chapter 8 Read Chapter 10 Read “The Business Plan: Introduction” –pp

44 Next Class - October 19 Lecture –Starting a New Business –Product Development –Being Creative –The Business Plan Mission Statement Quiz –Chapters 8, 10, and Business Plan Introduction Teams –Identify Product –Create Mission Statement