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Introduction to Entrepreneurship

VIEWS: 53 PAGES: 42

  • pg 1
									FM20731 – Entrepreneurship


Finding an Opportunity


 Week 2 – October 12, 2004


                             1
   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
                                                        2
               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!
                                                     3
              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


                                                    4
                Today’s Class
• The entrepreneurial team
    – Discuss Startup.com
•   Recognizing opportunity
•   Buying an existing business
•   Franchises
•   Other alternatives to new business



                                         5
                 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
                                                    6
Desirable & Acquirable Attitudes/Behaviors

  •   Commitment and determination
  •   Leadership
  •   Opportunity obsession
  •   Tolerance of
      – Risk
      – Ambiguity
      – Uncertainty
  • Creativity, self-reliance, and adaptability
  • Motivation to excel
                                                  9
     The Timmons Model of the
      Entrepreneurial Process

                      Communication

    Opportunity                          Resources
       (2)                                  (4)
                      Business Plan
  Ambiguity           Fits and gaps           Exogenous forces

Creativity                Team              Leadership
                           (3)
        Uncertainty                   Capital markets



                         Founder
                           (1)                               10
     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
                                        11
  What Is An Entrepreneur?


     ENTREPRENEURSHIP

The pursuit of opportunity through
innovation, creativity and hard work
      without regard for the
  resources currently controlled.




                                       12
  What Is An Opportunity?


                                  O
                                  P
                                  P
Recognizing a                     O
desired future    A belief that
                  achievement     R
state involving
growth or         of that state   T
change
                   is possible    U
                                  N
                                  I
                                  T
                                  Y


                                      13
                   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

                                                     14
            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


                                                       15
          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

                                                  16
        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




                                                17
           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
                                                    18
            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!!
                                                 19
   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




                                                20
                Brainstorming
•   Great way to generate ideas
•   As many ideas as possible
•   Everyone participates
•   Write down all ideas presented
•   Spark off of others’ ideas




                                     21
              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


                                                           22
                    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

                                                23
           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



                                              24
                 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
                                   25
          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
                                                   26
         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

                                             27
          Trend: Aging Population
• Aging population:
  –   Major shift to middle age.
  –   The "big generation" (1955-1966).
  –   Fastest growing age group is 75+.
  –   60 year old now = 40-45 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)
                                                    28
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.

                                               29
           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!




                                                    30
                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




                                                 31
       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                             32
      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
                                            33
          Getting into Business
• Buy an Existing Business
• Open a Franchise
• Start a New Business
  – We’ll discuss next week




                                  34
             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




                                               35
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!
                                              36
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!

                                            37
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
                                            38
       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
                                                      39
              Finding a Business
• Businesses on the market
  – Business brokers
  – Classified 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
                                                                40
                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
                                                                 41
             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:
          Year       1         2         3         4         5     Total
          Profit   $50,000   $50,000   $50,000   $50,000   $50,000 $250,000

      – Is it worth $250,000? No! $194,483 (at 9% interest rate)
           Year      1         2         3         4         5     Total
          Profit   $50,000   $50,000   $50,000   $50,000   $50,000
     Discounted    $45,872   $42,084   $38,609   $35,421   $32,497 $194,483
                                                                     42
                  Homework
• Read Chapter 8
• Read Chapter 10
• Read “The Business Plan: Introduction”
  – pp. 153-160




                                           43
            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
                                                     44

								
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