Entrepreneurship Chapter 3 Creating Business from Opportunity

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 2 The Business Definition The offer—what will the business offer the customers? Target market—who will it serve? Production and delivery capability— how will it provide the products & services it sells?

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 3 Types of Business  Manufacturing—makes tangible products & sells them through distributors or directly.  Wholesale—buys in bulk from manufacturers & sells smaller quantities to retailers.  Retail—sells individual items to consumers.  Service—sells time/expertise to consumers.

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 4 Defining an Organization Core Values Mission Vision Culture

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 5 Organizational Core Beliefs Beliefs entrepreneurs use to guide organizations. Example: My restaurant will support local organic farmers. Core beliefs affect: materials used in production prices charged how customers are treated

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 6 Mission Statement A concise statement of Target customers Products & services Markets served Use of technology Importance of public issues & employees Focus on survival, profitability, & growth

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 7 Vision Overall view of desired company future state Built upon core values & beliefs Compelling across the organization Employees need to be empowered to fulfill it

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 8 Culture Largely shaped by leadership Core values in action Includes Risk tolerance & innovation Orientation with respect to people, teams, & outcomes Attention to detail Communication norms

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 9 Routes to Finding Opportunities Self- or group-developed business ideas Research on “hot” business ideas or growth areas Product or service idea first & search for a market or business second

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 10 Factors of Competitive Advantage 1.Quality 2.Price 3.Location 4.Selection 5.Service 6.Speed/turnaround

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 11 What Is Your USP? Unique Selling Proposition—what attracts customers away from the competition and toward a business? 1.Compare what your business offers to what competitors offer. 2.Are you at a cost advantage or disadvantage?

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 12 Competitive Analysis Your Company Competitor #1 Competitor #2 Competitor #3 Quality Price Convenience Selection Service TOTAL

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 13 Define the Unit of Sale Manufacturing—one order Wholesale—a dozen Retail—one item Service—one hour of time or one completed task Combination—average sale per customer

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 14 Average Sale Per Customer Average sale per customer – Average cost of sale per customer Average gross profit per customer

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 15 Unit of Sale as a Combination of Different Items

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 16 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

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 17 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

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 18 Economics of One Unit (EOU) — Manufacturing

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 19 Economics of One Unit (EOU) — Wholesale

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 20 Economics of One Unit (EOU) — Retail Business

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 21 Economics of One Unit (EOU) — Service Business

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 22 Economics of One Unit (EOU) — Example

Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 23 The Entrepreneur’s Strategy:  Start a business with a profitable EOU  Hire others to create the units  Increase volume of units being sold  Start new businesses or expand opportunities Result: The entrepreneur creates jobs and wealth.