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COMM 320 Midterm: Midterm final copy notes

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Concordia University
COMM 320
Robert Nason

COMM 320 Midterm Exam Notes Theme 1: Entrepreneurship: Advantages: o Independence and flexibility (create work schedule & goals) o Financial rewards (unlimited earnings potential, opportunity cost for long period startup (3-5yrs)) o Enjoyment (self-accomplishment, alternate stress) o Challenge (need to achieve & perform in different skill sets) Disadvantages: o Risk (majority fail in first three years) o Stress (on self and family) o Working hours (long unscheduled hours) o Lack of skills (different aspects) o Financial rewards (less in startups) Decision Making Entrepreneurial Managerial Strategic Orientation Intuitive, not much Analysis, Rational planning measurement of Rapid change alternatives Planning systems Prudent many alternatives Commitment to Action oriented Slow to act on opportunity Opportunity Short decision windows Commitment to action is Assume risk willingly for long span Commitment of Resources Limited resources short Longer term – well term planned investment Needs- as needed basis Control of Resources Achieve goals focus Need for power, status, financial reward Management Style Flexible, Flat Hierarchy Types of Start-ups: 1) Cottage company: o Small venture, privately held o 10 or less employees o Revenues smaller than 1 mil o Little growth o Growing popularity50% of employment Canada 2) Lifestyle Firm: o Privately held 1 o Modest growth o Supports the owners o Revenue approx. 2 mil 3) Foundation Company: o Created from R&Dfoundation for new business area o 5-10 year growth = 40-400 employees o $10-20 million annually o Rarely go public private investors only 4) High-Potential Venture: o Receives greatest investment interest and publicity o Starts like foundation but grows faster o 5-10 years = 500 employees o Revenues= $20-30 mil o Gazelles: very high growth ventures Entrepreneurs and small business role in economic development: ▪ Employ more people, create more jobs, generate more innovation ▪ Small business and entrepreneur are directly linked ▪ Entrepreneurs bridge gap between innovation & job creation ▪ Entrepreneurs continuously innovate (new opportunity + growth) Entrepreneurial Careers and Education: ▪ Childhood: need achievement, focus of control, risk taking, gender identity ▪ Employment: higher probability of success if in field of work experience. Negative displacement encourages new venture ▪ Adulthood: impacts women more (start later stages in life) ▪ Work Situation: sacrifice almost everything, source of self-esteem The Intrapreneur non-traditional entrepreneur: ▪ Intrapreneurship: entrepreneurship within an existing organization ▪ Bridge gap between science and marketplace ▪ Financial resources, Business skill innovation, Marketing & distribution commercialize innovation successfully ▪ Problem: bureaucratic structure, short term profit emphasis ▪ Solution: Intrapreneurial spirit: strategic business units (SBUs) ▪ Stimulating individualsself actualizationcapitalize Theme 2: Entrepreneurial Mindset: ▪ Commitment, determination, perseverance ▪ Drive to achieve ▪ Opportunity orientation (focus on opportunity rather than resources, structure or strategy) + (constant awareness of opportunity in everyday life) ▪ Initiative and responsibility 2 ▪ Persistent problem solving (simple problems are boring) ▪ Seeking feedback (quick learners) ▪ Internal locus of control (control own fate) ▪ Tolerance for ambiguity (face uncertainty, lack of original structure) ▪ Calculated risk-taking (get odds in their favor and avoid uncertain risks) ▪ Integrity and reliability (build and sustain trust and confidence) ▪ Tolerance for failure (use failure as learning experience) ▪ High energy level (even when workload is heavy, and stressful demands) ▪ Creativity and innovativeness ▪ Vision (know where you want to go) ▪ Self confidence and optimism (constant belief in ability) ▪ Independence ▪ Team building Psychological Traits Attributed to Entrepreneurship: 1) Need for Achievement o Personal responsibility/ difficult decisions o Moderate risk taker (calculated risks) o Hunger for feedback 2) Internal Locus of Control: Belief about what controls you, you have the power 3) Tolerance for Ambiguity 4) Perseverance, Energy 5) Values (freedom, free enterprise, no government intervention) 6) Intuition 7) Innovation 8) Emotional Stability (Ups & Downs) Entrepreneurship interaction of skills: Inner control, risk taking, innovation, planning, goal setting, reality perception, use of feedback, decision-making, human- relations, independence To Exude passion (Draw people in): 1) Be genuine in your excitement 2) Redefine rejection as learning 3) Convey personal successes 4) Empathize with others Profit motive: the desire for monetary gain/return from venture Types of risk: 1) Financial risk: personal bankruptcy 2) Career risk 3) Family and social risk (lack of energy and time) 4) Psychic risk 3 Sources of Stress: ▪ Loneliness (long hours, isolated from confidants) ▪ Immersion in business (no vacation time) ▪ People problems (frustration, disappointment, aggravation) ▪ Need to achieve (try to accomplish too much and end up dissatisfied) Dealing with stress (Boyd & Gumpert suggestions): ▪ Clarify causes of stress ▪ Acknowledge its existence ▪ Develop coming mechanisms ▪ Explore unacknowledged personal needs Six ways to cope with stress: 1) Networking (reduce loneliness) 2) Getting away from it all (holidayself renewal) 3) Communicating with employees (personal touches) 4) Find satisfaction outside company (new passions) 5) Delegating (gain time to alleviate stress) 6) Exercising rigorously Entrepreneurial Ego: ▪ Overbearing need for control (implication on networking due to need for own terms) ▪ Sense of distrust (alert to competition and customers, continuously scan environment, act before othersdistort reasoningdestructive actions) ▪ Overriding desire for success (succeed in spite of the odds, demonstrate achievementhuge buildingdestructive) ▪ Unrealistic optimism (leads to a fantasy approach, ignore trends and facts) Theme 3: Identifying and Recognizing Opportunities: ▪ Opportunity: a favorable set of circumstance that creates a need for a new product, service or business o Started in one of two ways: ▪ Externally: search for an opportunity -> start business ▪ Internally: recognize problem/ opportunity gap -> create business to fill it ▪ Common mistake: choose product you like and build slightly better version ▪ The key to opportunity recognition: identify product people need and are willing to buy, not one you want to make or sell ▪ An opportunity has four essential qualities: 1) Attractive 2) Durable 3) Timely 4 4) Creates/Adds value for end user ▪ In order to capitalize on an opportunity, its Window of Opportunity (time period a firm can realistically enter) must be open ▪ Idea: a thought, impression or a notion o Critical point -> many fail because no real opportunity to begin with Observing Trends: First Approach: ▪ Observe trends and study how they create opportunities ▪ Important to distinguish between trends and fads ▪ Trends are interconnected and should be considered simultaneously ▪ Example: o Apple iPod ▪ Teenagers increased disposable income (economic trend) ▪ Increasingly mobile population (social trend) ▪ Continual miniaturization of electronics (technological trend) ▪ Economic Trends: o When economy is strong->people buy discretionary products o Weak economy-> business opportunity to help consumers save money (Groupon) o Important to evaluate who has money to spend and what on o Understanding economic trends helps identify areas to avoid ▪ Social Forces (Trends): o Understand the impact of social forces on trends, how they affect new product, service and business ideas o Current social trends: ▪ Retirement of baby boomers ▪ Diversity in the workforce ▪ Increased interest in healthy foods ▪ Alternative forms of energy ▪ Technological Advances (Trends): o Technology is not the key to recognizing opportunities o The key is to recognize how technologies can be used/harnessed to satisfy basic/changing human needs ▪ Ex: cell phone – motivated by increasingly mobile population ▪ E-commerce sites are technological marvels but they are popular because people are busy and their free time is different from restricted store hours o Tech advances provide opportunities to help people perform everyday tasks in better ways o Once a technology is created, products emerge to advance it (iPod accessories – every $3 spent on and iPod = $1 spent on an accessory) ▪ Political and Regulatory Changes: o The change in regulation brings attention to the issue and provides ideal timing to provide a product that not only meets but exceeds the new regulation 5 Second Approach: ▪ Recognize problems and find ways to solve them ▪ Recognize by observing daily challenges people encounter or intuition ▪ “Every problem is a brilliantly disguised opportunity”- John Gardner Third Approach: ▪ Find gaps in the marketplace ▪ Gaps: occur when products consumers need/want that aren’t available ▪ Gaps represent potentially viable business opportunities ▪ Related technique is to take an existing product/service and create a new category by targeting a completely different target market o Involves creating a gap and filling it o Example: PopCap games found a gap for “casual games” ▪ Game manufacturers target young males while women 25 years+ account for 90% of casual games (Alee <3 Tetris) Personal Characteristics of the Entrepreneur ▪ Personal characteristics make some people better at recognizing opportunities than others ▪ Opportunity Recognition: process of perceiving the possibility of a profitable new business o Opportunity cannot be taken until it is recognized ▪ Prior Experience: o By working in an industry able to spot a market niche that is underserved o Build network of social contacts o Corridor Principle: once an entrepreneur starts a firm they begin a journey down a path of “corridors” leading to new venture opportunities ▪ Cognitive Factors: o Opportunity recognition considered innate skill or a cognitive process -> “sixth sense” o Entrepreneurial Alertness: name of sixth sense and is the ability to notice things without engaging in deliberate search o Alertness is a largely learned skill, more knowledge of an area tend to be more alert to opportunities o Controversy: alertness goes beyond noticing things and involves a more purposeful effort ▪ Difference between opportunity finders (entrepreneurs) and nonfinders is their relative assessments of the marketplace, they could be better at sizing up the market and inferring likely implications ▪ Social Networks: o Extent and depth affects opportunity recognition 6 o Network entrepreneurs identifies significantly more opportunities than solo entrepreneurs ▪ Ideas spark from Weak-tie Relationships because exchange in these ties are less likely to be like-minded and thus spark a completely new idea ▪ Creativity: o Creative process for an individual broken into five stages o If at any stage get “stuck” then return to preparation stage to obtain more knowledge before moving on o Preparation: ▪ Is the background, experience, and knowledge the entrepreneur brings to the opportunity recognition ▪ 50-90% of start-up ideas emerge from prior work experience o Incubation: ▪ Considers idea or thinks about a problem consciously/unconsciously o Insight: ▪ The flash of recognition – when the solution to a problem is seen or an idea is born (eureka) ▪ Moment recognize opportunity and push the process forward or return to preparation stage o Evaluation ▪ Idea is subjected to scrutiny and analyzed for its viability ▪ Challenging stage – requires candid look o Elaboration: ▪ Creative idea is put into final form, details are worked out, idea is transformed into something of value ▪ New business plan is written Identifying your industry, the target sector in the industry and type of business: 1) Identify the industry you want to enter based on: experience, education, family connections, and personal interests 2) Select sector of industry where opportunity strikes 3) Determine the type of business with the greatest potential (product, system, service) Decide which market to enter based on: 1) Work experience (position, type, depth) 2) Education experience (university skills gained) 3) Family experience (family business, experience gained, source of finance, access to channels and supplies) 4) Personal business goals (long-standing goals of innovator/entrepreneur) Correspond with characteristics of target industry and sectors within the industry 7 ▪ Potential venture ideas: {Product, system, service, hybrid}opportunity ▪ Must integrate internal with external factors (market demand, trends) ▪ Find industry with positive characteristics build enterprise that capitalizes on them and your internal factors The potential target industry: ▪ Look for positive indicators in: o Size, growth rate, profitability o Concentration and intensity of competition o Life cycle stage (industry’s/sector’s) o Barriers of entry Exception: system and service (not products) can have opportunities at all stages of the life cycle (not just in the sweet spot) if they can provide: ▪ Cost-saving production methods ▪ Operating efficiencies ▪ Imaginative marketing concepts ▪ Customer-pleasing product innovation o Provide any of the above and success can strive at any stage Barriers to entry: capital (R&D), time, manufacturing (machines), marketing Environmental scanning can be used to design a business: ▪ Security: after 9/11 security companies were in need ▪ Health: baby-boomers are getting other can use home healthcare ▪ Energy: as oil prices go up alternatives are needed ▪ Government regulations: exploit them (financial reporting software Theme 4: Business plan: - Essential to raise money and assist in management of company - Is a written document that describes the internal and external elements in a new venture - Combination of relevant functional plans - Types of functional plans: financial, marketing, human resources, productions and sales - Addresses both short and long-term decision making for the first 3 years - Where am I now? Where am I going? How will I get there? - External factors: regulations, competition, social changes, new technology… - By writing his own plan, an entrepreneur can learn much about his business - Lawyers, marketers, accountants and engineers inputs may be of use - Usually read by employees investors, bankers, venture capitalists, suppliers, customers, advisers and consultants (must satisfy everyone’s needs) - Should look at the business from three different points of view o The entrepreneur’s (full understanding of business and technologies) o The customer’s (review the products marketing) o The investor’s (sound financial projections) 8 - The business plan should not only be used to start the business but should be updated frequently and used to direct the entrepreneur throughout - Helps determine viability of venture in its designated market - Important tool to help obtain financing - Should make all readers from non-professional institutions sign a non- disclosure agreement to protect the business idea Investor criteria to a sound business-plan: - Clearly communicated business model - Proof that the business model makes sense (from experts in the field) - Strong management team and board of advisors - Realistic financial projections (don’t overestimate sales and profits) - Very little salary to the entrepreneur - An investment in the company from the owner - Clear marketing plans and accurate startup costs - An appreciation for the lenders needs - An exit strategy - Enthusiasm Starting a business plan: - Before starting an entrepreneur must take all other opportunities into consideration and decide is this is the one he truly wants to pursue (financially and emotionally) - Than, he must conduct market and industry research to identify his competition. He should start broadly and narrow it down gradually - Operations information: o Location: accessibility to customers suppliers and distributers o Manufacturing: identification of machine and assembly operations o Raw materials: suppliers names, addresses, and costs o Equipment: listed with costs (purchased or leased) o Labor skills: skills needed, pay, where to obtain skilled labor o Space: total amount should be identified (owned or leased) o Overhead: each item needed to support manufacturing - Financial information: possible expenditures in first year, and list of all revenue sources including sales and external available funds (attain estimates from other companies in the market) - Use Internet as a resource: online audience not only increased but represents a much broader cross-section of consumers - Entrepreneurs will have to write more than one plan, or edit it to satisfy different parties, at the least an investor will write a: o Snapshot plan: used to get investors attention (concise, written to sell15-50 pages) ▪ Short sentences and simple words ▪ Headers to separate text and draw attention to key points ▪ Use white space between sections or points ▪ Use lists, bullets, pictures, graphs, and diagrams ▪ Never exaggerate or lie 9 o Master plan: comprehensive plan. Investors will eventually ask to see this. Not only to attract investors, but should be used as an operations manual. - Develop a plan for writing the plan (if not it can be overwhelming) The Business Plan: - Introductory page: cover page that provides brief summary of the plan’s contents (name, number, email and website) + a paragraph describing the company and nature of the business, the amount of financing needed and a statement of confidentiality of the report. - Executive Summary: prepared after the plan is written and concisely summarizes it (stimulate the interest of potential investors) - Environmental and industry analysis: trends and changes occurring on a national and international levels (economy, technology, legal concerns, industry demand, and competition) **usually uncontrollable** - Description of venture: should be detailed. This will enable investors to ascertain the size and scope of the business. Should begin with the mission statement. Include the product offered, location, size, equipment and history. - Production plan: describe complete manufacturing process including subcontracts, location, price etc. - Operations plan: describes flow of goods and services from production to the customer. Includes inventory, storage, shipping, control procedures, and customer support. - Marketing plan: describes how products will be distributed, priced, and promoted. Research evidence to support critical marketing decisions and strategies as well as forecasting sales (project pro
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