Entrepreneurship and Small Business Management Chapter Creating Business from Opportunity Ch Performance Objectives  Define your business  Articulate your core beliefs, mission, and vision  Analyze your competitive advantage  Perform viability testing using the economics of one unit Entrepreneurship and Small Business Management, 1/e © 2012 Pearson Education, Upper Saddle River, NJ 07458 The Business Definition  Who will the business serve? (target market)  What will the business sell? (the offer)  How will the business provide the products and/or services it offers? (production and delivery capability) Entrepreneurship and Small Business Management, 1/e © 2012 Pearson Education, Upper Saddle River, NJ 07458 Basic Types of Businesses  Manufacturing—makes a tangible product and sells it through distributors or direct  Wholesale—buys in bulk from manufacturers, and sells smaller quantities to retailers  Retail—sells individual items to consumers  Service—sells an intangible product to consumers or other businesses Entrepreneurship and Small Business Management, 1/e © 2012 Pearson Education, Upper Saddle River, NJ 07458 Defining an Organization  Core Values—the fundamental ethical and moral philosophy and beliefs  Mission—the business intention, and the core strategy for achieving it  Vision—an overall “picture” of what you want the business to become  Culture—the working environment Entrepreneurship and Small Business Management, 1/e © 2012 Pearson Education, Upper Saddle River, NJ 07458 Core Values  Are used to guide decision making in the organization Example: My restaurant believes in supporting local organic farmers  Affect business policies, such as:    Type of materials used in production Prices charged How customers are treated Entrepreneurship and Small Business Management, 1/e © 2012 Pearson Education, Upper Saddle River, NJ 07458 The Mission Statement    Defines the purpose of the business in 40 to 50 words Provides direction and motivation Addresses these topics:      Target customers and markets served Products and/or services provided Use of technology Importance of public issues and employees Focus on survival, profitability, and growth Entrepreneurship and Small Business Management, 1/e © 2012 Pearson Education, Upper Saddle River, NJ 07458 Vision  Broad view of the company’s desired, future state  Built on the company’s core values  Must matter across the organization  Employees need to be empowered to fulfill it Entrepreneurship and Small Business Management, 1/e © 2012 Pearson Education, Upper Saddle River, NJ 07458 Culture  Largely shaped by company’s leaders  The core values in action  Learned by employees through stories, ceremonies, events, and symbols  Impacts behavioral norms such as:  Risk tolerance and innovation  Attitudes toward people, teams, outcomes  Communication—language and methods Entrepreneurship and Small Business Management, 1/e © 2012 Pearson Education, Upper Saddle River, NJ 07458 Routes to Finding Opportunities  Self- or group-developed business ideas through brainstorming  Researching “hot” business ideas or growth areas  Starting with a product or service idea, and then searching for a market Entrepreneurship and Small Business Management, 1/e 10 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Competitive Advantage Factors  Quality: Can you provide higher quality than competing businesses?  Price: Can you offer a lower price on a sustained basis than your competition?  Location: Can you find a more convenient location for customers? Entrepreneurship and Small Business Management, 1/e 11 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Competitive Advantage Factors (continued)  Selection: Can you provide a wider range of choices?  Service: Can you provide better, more personalized customer service?  Speed/Turnaround: Can you deliver your product or service more quickly? Entrepreneurship and Small Business Management, 1/e 12 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Is Your Competitive Advantage Strong Enough? Unique Selling Proposition (USP): What features/benefits set your business apart from its competition? Compare what your business offers to what competitors offer Determine if you have a cost advantage or cost disadvantage Entrepreneurship and Small Business Management, 1/e 13 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Competitive Analysis Your Company Competitor #1 Competitor #2 Competitor #3 Quality Price Location Selection Service Speed Specializatio n Personalizati on Entrepreneurship and Small Business Management, 1/e 14 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Strategy Versus Tactics   Competitive strategy  Your plan for outperforming the competition  Combines business definition with sustainable, competitive advantage Tactics—ways in which you carry out your strategy Entrepreneurship and Small Business Management, 1/e 15 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Feasibility Analysis Economics of One Unit of Sale (EOU): What is the amount of gross profit earned on each unit of the product or service your business sells? Define the unit of sale Calculate the amount of gross profit per unit If one unit of sale is profitable, the whole business is likely to be profitable Entrepreneurship and Small Business Management, 1/e 16 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Define the Unit of Sale      Manufacturing—one order Wholesale—multiple of the same item (example: a dozen roses) Retail—one item Service—one hour of service time or a standard block of time devoted to a task Combination—average sale per customer minus average cost of sale per customer (example: restaurant meals) Entrepreneurship and Small Business Management, 1/e 17 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Determine the Average Sale Per Customer  If the business sells differently priced items, use the average sale per customer as the unit of sale  Average unit of sale = total sales divided by the number of customers Entrepreneurship and Small Business Management, 1/e 18 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Calculate Gross Profit Per Unit Gross profit per unit = selling price per unit minus COGS or COSS per unit  Cost Of Goods Sold: cost of labor and materials required to make one additional unit of a tangible item  Cost Of Services Sold: cost of labor and materials required to provide one additional unit of a service Entrepreneurship and Small Business Management, 1/e 19 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Economics of One Unit — Manufacturing Business Entrepreneurship and Small Business Management, 1/e 20 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Economics of One Unit — Wholesale Business Entrepreneurship and Small Business Management, 1/e 21 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Economics of One Unit — Retail Business Entrepreneurship and Small Business Management, 1/e 22 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Economics of One Unit — Service Business Entrepreneurship and Small Business Management, 1/e 23 © 2012 Pearson Education, Upper Saddle River, NJ 07458 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 Entrepreneurship and Small Business Management, 1/e 24 © 2012 Pearson Education, Upper Saddle River, NJ 07458  ... Wholesale Business Entrepreneurship and Small Business Management, 1/e 21 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Economics of One Unit — Retail Business Entrepreneurship and Small Business. .. Entrepreneurship and Small Business Management, 1/e 19 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Economics of One Unit — Manufacturing Business Entrepreneurship and Small Business Management, ... sell? (the offer)  How will the business provide the products and/ or services it offers? (production and delivery capability) Entrepreneurship and Small Business Management, 1/e © 2012 Pearson