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Lecture 7

BU111 Lecture 7: Entrepreneurship

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Sofy Carayannopoulos

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Understanding Entrepreneurship NEW VENTURE Preliminary Report Two parts - idea proposal Idea Proposal - briefly describe idea, value, uniqueness, customer, size of market, revenue model - competing & substitute products chart, PEST list, highlighted sections of 5 forces chart, GEL chart Google searches Additional details: - Maximum 3 type-written pages, plus references, charts, cover page, Google search screen shots - Charts single-spaced, remainder double-spaced - Submit to turnitin as well as hard copy - Submit peer evaluations - one piece of positive feedback - one piece of constructive criticism (one thing they could do better) - spill over charts are allowed - sources for everything you get - delete rows without content - use footnotes in chart cites (use superscript numbers) - New Venture: recently formed commercial organization that sells goods/services - Entrepreneurship: identifying an opportunity and accessing resources to capitalize - Small Business: owner-managed, not dominant in market, <100 employees - example of new venture that is not a small business is Tesla - Importance: - 98.1% of all businesses in Canada are small - contribute 30% annually to GDP - provide more jobs than large businesses - new ventures lead in new products and services - Government support: - lower tax rate: - encourage entrepreneurs, support new businesses to create more innovation and growth in the economy because these entrepreneurs are providing huge assets to the economy - resources - advice and sometimes funding - government offers whatever resources they can to support entrepreneurs - ease of establishment - low barriers to entry for entrepreneurs to have easy access to these businesses - influenced by PEST - successful only when entrepreneur, opportunity, and resources fit - begins with entrepreneur identifying an opportunity then accessing resources - is similar to Diamond-E: - entrepreneur is parallel to both managerial preferences as well as organization - opportunity is environment - access resources is parallel to resources - Idea Generation: Understanding Entrepreneurship - often paradigm shifts - originate in events relating to work or daily life, hobbies, chance happening - solve a problem and the solution sells itself: - listen to complaints and frustrations - ask customers what they wish they could get - play the mix and match game; combine functions - offer a lower-priced or more convenient version of an existing product - read the lab manual article on Canadian demographics - lots of problems to be solved - screening: - weeding out bad ideas - saves time, money - ensures you have a viable idea with a competitive advantage Three-Component Screening Process - screening for viability & competitive advantage - A. Idea creates or adds value for customer: - solves a problem, meets a need - customer willing to pay for it - B. Idea provides a competitive advantage that can be sustained - product unique in a valuable way/better than others - how is it different and better from existing products and substitutes? - are differences valuable to customers? - is it something that existing firms can easily do or may want to imitate? - can the idea be protected legally? - C. The idea is marketable and financially viable - Are there enough customers who are willing to buy it? What is the market demand likely to be? - Who are the key competitors and what are the forces that affect profitability? - Is the market growing, shrinking, concentrated, fragmented? - Safety point: Does the idea have low exit costs? - longer time to profitability or greater up-front investment needed = riskier venture New Venture Sample Analysis: Evaluating Your Business Opportunity Criterion High Potential - Good idea Low Potential - Bad Idea Product/value added - big impact - small incremental impact Customer/Market - large growing market, - loyal to others/small/declining reachable market Competition/Rivalry - low competition, fragmented - highly concentrated, mature, competition under capacity Suppliers - many suppliers with low - few, high switching costs switching costs Substitutes - non-existent or very few - man, good quality inexpensive substitutes low switching costs Understanding Entrepreneurship Barriers to Entry - low barriers to entry, high - high, competition stiff, hard to barriers to entry for competitors tap needed networks PEST - trends happening in each factor - conditions will make profitability that give you an advantage or difficult or will cause declining opportunity profitability in the future Accessing Resources - Bootstrapping - doing more with less - make do with as few resources as possible - use other peoples’ resources where possible - find/use free stuff - Debt vs. Equity Financing - debt = interest and control - sources: financial institutions, suppliers - must offer collateral for loans to be worthy of a loan - equity = no interest, less control - sources: savings, love money, private investors, venture capitalists (give bigger amounts of money and more advice for a bigger stake in the business) - example of v.c. : dragons den, no matter how much they want you
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