Entrepreneurship and Small Business Management

Entrepreneurship and Small Business Management

Chapter 5 Creating Business from Opportunity

© 2012 Pearson Education, Upper Saddle River, NJ 07458.

All Rights Reserved.2

Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin

Ch. 5 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.




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)




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




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




Core Values Are used to guide decision

making in the organizationExample: 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




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




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




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




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




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?




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?




Is Your Competitive Advantage Strong Enough?

Unique Selling Proposition (USP): What features/benefits set your business apart from its competition?

1. Compare what your business offers to what competitors offer.

2. Determine if you have a cost advantage or cost disadvantage.




Competitive AnalysisYour Company

Competitor #1

Competitor #2

Competitor #3

Quality

Price

Location

Selection

Service

Speed

Specialization

Personalization




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




Feasibility AnalysisEconomics 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?

1. Define the unit of sale.2. Calculate the amount of gross profit per

unit.3. If one unit of sale is profitable, the whole

business is likely to be profitable.




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)




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




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




Economics of One Unit —Manufacturing Business




Economics of One Unit —Wholesale Business




Economics of One Unit — Retail Business




Economics of One Unit — Service Business




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

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