AB209 Small Business Management Unit 2 – Getting Started: From Idea to Business Venture

Idea + Vision + Planning = Venture In Unit 2, we will explore the initial steps in the formation of the new venture and how these work to shape the future of the business. It begins with the entrepreneur asking “why” the new business? We will examine the critical role of the entrepreneur’s vision as a precursor to the planning process and the significance of the mission statement to the new business.

Unit 2 Outcomes Discuss the role of vision as a precursor to the planning process. Identify different entry options. Identify how the entrepreneur’s interpersonal factors influence the new business. Discuss the role of the mission statement. Describe the potential of small firms as global enterprises.

Unit 2: Owning a Business There are 4 basic ways to start one’s ownership of a business: 1.Start a new venture as a sole proprietorship, partnership, or corporation from scratch 2.Purchase a franchise 3.Purchase an existing business (buyout) 4.Assume control and management of one’s family business Each of these approaches has its own unique advantages and disadvantages!

Starting A Business Using Your Own Ideas Opportunity Recognition Identification of potential new products or services that may lead to promising businesses Entrepreneurial Alertness Readiness to act on existing, but unnoticed, business opportunities Good Investment Qualities Products that serve clear and important needs Products that customers know about Products that customers can afford A good idea is not the same as a good opportunity.

Sources of Venture Ideas Source: Data developed and provided by the National Federation of Independent Business and sponsored by the American Express Travel Related Services Company, Inc. © 2010 South-Western, Cengage Learning, Inc. All rights reserved.

Advantages to Starting Your Own Venture Personal satisfaction in seeing the success of one’s own good ideas and hard work Potential to reap financial rewards of venture’s success Satisfaction of being one’s own boss  Question: Can you think of other advantages?

Disadvantages to Starting Your Own Venture Lack of sufficient start-up capital Increased financial liability Hard work and long hours required Lack of specific required managerial skills to successfully operate the business  Question: Can you think of other disadvantages?

Franchising Basics Franchising -A marketing system involving a legal agreement, whereby the franchisee conducts business according to the terms specified by the franchisor. Franchisor -Party in franchise contract that specifies methods to be followed and terms to be met by the other party. Franchisee -An entrepreneur whose power is limited by a contractual agreement with a franchisor.

Advantages to Franchises An Operational Plan (Road Map) provided: Training Financial assistance Operating Support -Location site selection -Co op Advertising A proven idea and business model  Question: Can you list other advantages?

Disadvantages to Franchises Franchise costs -Initial franchise fee -Investment costs -Royalty payments -Advertising costs Less Control -Franchisor often has strict guidelines  Question: Can you list other disadvantages?

Buying An Existing Business Advantages: -Initial start-up work already done -Established customer base -Established performance record to see  Question: Can you list other advantages? Disadvantages: - Business culture already formed - Business may not be worth asking price  Question: Can you list other disadvantages?

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Vision Statement Vision must go before goals-setting and planning! Vision is the future possibility you see for the new business based on present realities! Many new businesses are limited by the lack of vision of their founders! The Vision Statement can be described as what you, as founder, visualize the new business to be at some point in the future. Remember, as founder, you cannot realize that which you cannot visualize!

Mission Statement A brief statement detailing the reasons for the business’ existence and the guiding principles of the new business Mission Statements are far more than merely advertising slogans! Every activity of the business should reflect the fundamental mission of the business organization as stated in its mission statement.

Personal Motivation Although not normally a part of a business plan, this section asks you to articulate your motivation for seeking entrepreneurship and business ownership. There are no prescribed answers here! The reasons for entrepreneurship are as varied as those who pursue it! What are your reasons for wanting to own your own business? Entrepreneurship and business ownership are hard and stressful work! It is important that those who seek this are sufficiently motivated to be successful.

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Unit 3 Planning the Business and it’s Products and Services

The Planning Process and Defining the Products or Services While the vision statement and mission statement provide the “why” of the new business, the description of the firm’s products or services provides “what” the new venture proposes to do within the marketplace. In Unit 3, we will view the entire planning process in general, and specifically the plans for describing the products or services of the new firm. We will see that this planning process directly addresses specific skills that are required by the new business.

Unit 3 Outcomes Explain the purpose and objectives of business plans. Give the rationale for writing a business plan when starting a new venture. Identify the specific skills required in managing a new start-up business. Describe the products or services of a new venture.

The Purposes of a Business Plan Primary Functions -To provide a clearly articulated statement of goals and strategies for internal use -Imposes discipline on the entrepreneur and management team -To serve as a selling document to be shared with outsiders -Provides a credible overview for prospective customers, suppliers, and investors -Helps secure favorable credit terms from suppliers -Opens approaches to lenders and other sources of financing

The Purposes of a Business Plan (Continued) Questions:  What discipline does the business planning process impose on the entrepreneur?  Is this process as valuable as the resulting plan?

Its Not the Plan - Its the Process! ). Why a Plan?: The construction of a business plan forces every entrepreneur to consider the critical factors that will determine the success or failure of their venture. Each area of the business can be considered as its own plan covering the following broad areas:

Plan Areas ). 1. The Opportunity – How attractive is the industry and the venture’s place within it? 2. Critical required resources: Human assets – The people required. Capital assets – The money required. Hard assets – Equipment, inventory, fixtures, etc. required. 3. Entrepreneurial Team resources

Plan Areas (Continued) ). 4. Financing Structure – How will the new venture be financed? Debt versus equity 5. Contextual elements (Environmental elements) Economic trends, demographics, regulatory environment, barriers to entry, and other things beyond the control of the entrepreneur.

How Much Planning is Needed? Factors affecting the extent of a business plan: -Cost in time and money to prepare the plan -Management style and ability -Preferences of the management team -Complexity of the business -Competitive environment -Level of uncertainty

Types of Business Plans Mini-Plan -A short form of a business plan that presents only the most important issues and projections. Comprehensive Plan -A full business plan that provides an in-depth analysis of the critical factors that will determine a firm’s success or failure, along with all the underlying assumptions.

Types of Business Plans (Continued) Question:  What factors would make you choose one plan form over the other?

The Description of Products or Services There is much more to the Description of Products or Services section than it would appear at first glance! Identifying the specific products or services that the business will provide to its customers is essential before a marketing plan can be developed. Many businesses attempt to “be all things to all people” and consequently find that they are “not enough for anyone!” What specific factors can you identify that will give your new venture a competitive edge in this market? What will be your pricing or fee structure? Why? These are critical questions that must be satisfactorily answered before you can expect others to assume any risk in your new venture and they should be answered to your own satisfaction before investing your own resources!

Any questions?