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Chapter 3 - Entrepreneurship

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Sofy Carayannopoulos

Keith Diaz, BUS111 Chapter 3 – Entrepreneurship Market Potential vs. Sales Forecast Market potential: The total amount that consumers might buy, under the right circumstances Sales forecast: the amount you think you can sell using your plan - More important than market potential - Who will buy the product? Will everyone want one? - Who would switch products to buy this? - How is it compatible with consumers’ current way of doing things? - What is the competition? How will they affect you? Sensitivity analysis - Largest/smallest competitors’ sales - Average sales per competitor - Sales of a company that launched a similar product - Last year’s sales +/- (for existing or modified products) - Growth rate over last x years continues (for existing or modified products) Entrepreneurship  Entrepreneurs : recognize and seize opportunities to control their own destiny + access the resources needed to capitalize on that opportunity  Even successful businesses have disappointments and failures, but true entrepreneurs know how to overcome them, reduce their losses, and to capitalize on the best available opportunity  Because starting a business involves dealing with much uncertainty, every new venture founder must exercise some of the personal attributes of an entrepreneur.  Brings knowledge, expertise, capabilities, resources & managerial preferences/bias (diamond E) - Behavioural (taking initiative) - Personality traits (independence) - Skills (problem solving) Small Business:  An owner-managed business with less than 100 employees  While large businesses have more employees, small businesses collectively provide more jobs than large businesses. Small businesses also lead the way in innovation and new technology. In the Canadian Economy…  These patterns are consistent across all provinces - 97.8% of all businesses in Canada are small contribute over 25% annually to GDP - 1.9% of employer businesses are medium-sized (100-499 employees) - 0.3% are large businesses (500+ employees) The new Venture/Firm  Recently formed (in the past year) commercial organization that provides goods/services for sale  Various criteria can also be used to determine when a new firm comes into existence 1. When it was formed 2. Whether it was incorporated 3. If it sold goods/services  main source of job creation also responsible for the majority of new products and services Keith Diaz, BUS111 The Entrepreneurial Process  influenced by PEST in the broader environment  3 key elements in the entrepreneurial process, and the way they interact 1. Entrepreneur (main focus) 2. Opportunity 3. Resources - As the 3 key elements interact, they may be mismatched or well matched - the entrepreneurial process is successful only when the 3 key elements match - begins with entrepreneur identifying an opportunity then accessing resources A) Identify an opportunity  generating ideas for new/improved products, processes, or services - involves abandoning traditional assumptions about how things work and how they should be, and seeing what others don’t see  paradigm shifts - most new ventures don’t emerge from a deliberate search for viable business ideas - Work experience is the most common source of ideas - Other sources of new venture ideas include personal interest/hobby or a chance happening  screening those ideas - the faster you weed out bad venture ideas, the more time/effort you devote to others - ensures that you have a viable idea with a competitive advantage use PEST and 5 forces - Identify and discuss how key trends in the environment and the industry affect your idea  use PEST to assess environment and if it supports idea - Use 5 forces to determine the ease of entry and profitability of industry - Use research to evaluate how big the market is; if it’s growing, shrinking, stagnant… - Research expert opinions in the industry - Is it something that existing firms can easily do or may want to imitate?  protect legally - Creates/adds value for customer: a product that creates or adds value for the customer is one that solves a significant problem, or meets a significant need on new/different ways - Idea provides sustainable competitive advantage: unique& better than that of competitors. Sustaining a competitive advantage means maintaining it in the face of competitors actions or changes in industry  easy if markets are in state of flux for long time - Idea is marketable and financially viable (5forces): determine whether sales lead to profits. I. Estimating market demand means understanding who the customers are, what they’re needs are, and how the product/service will satisfy their needs better than competitors’. II. Prepare a sales forecast: estimate of how much a product/service will be purchased by the prospective customers for a specific period of time (usually a year). III. Determining financial viability involves preparing financial forecasts (2-3 year projections of a venture’s future financial position and performance). They consist of an estimate of start-up costs, cash budget, and income statement, and a balance sheet. These projections are the basis for decisions regarding whether to proceed with the venture, and (if so) the amount and type of financing to be used in financing the new business. - Idea has low exit costs: exist costs are low if a venture can be shut down without a significant loss of time, money, or reputation. If a venture isn’t expected to make profit for many years, exit costs are high since the project cannot be abandoned in the short term Evaluating your venture opportunity (screening process) criterion Highest potential Lowest potential Keith Diaz, BUS111 Product Changes the way people live, work, Incremental improvement only; one- learn, etc.  recurring revenue time revenue Customers Reachable Loyal to others, unreachable Value added High Low; minimal market impact Market structure Imperfect; fragmented competition Highly concentrated, mature Market Large and growing – room for everyone Small/declining Market capacity At/near full capacity  there’s room
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