STEN 1000 Chapter Notes - Chapter 7: Cash Flow, Decision Points, Intellectual Capital
20 Jun 2018
School
Department
Course
Professor
CHAPTER 7 – ENTREPRENEURSHIP AND FORMS OF BUSINESS
OWNERSHIP
Entrepreneur – a person who starts a business and is willing to accept the risk associated wit
investing money in order to make money
Venture Capitalist – an individual who provides capita to a business venture for start-up or
expansion purposes
Common characteristics of entrepreneurs (MERF):
1. Motivation – entrepreneurs are highly motivated individuals, have an underlying desire
or passion to excel and tenacity when it comes to striving for success; failure is expected,
but adaptability, determination and perseverance enable them to push through.
2. Expertise – in the area in which they are pursuing their business opportunity, precise and
methodical in the way the business is to be approached and how resources re to be
allocated
3. Risk Management – risk can be controlled and the underlying stress associated with risk
can be managed and counterbalanced, able to manage the uncertainty and potential
failure
4. Focus – can successfully communicate the vision they have, ability to uniquely sense the
opportunity that exists, dealing with opposition of their idea; balanced by flexibility
5. Self-belief – drivers confidence, illustrated by to defy conventional wisdom and reinvent
the way the business takes place within their market, willingness to fully commit to the
business idea
The Business of Entrepreneurship
- What I takes to develop a successful business (fig. 7.2):
1. Quality of the management team
- Investors know that business plans, although a good starting point, often change as
the business evolves. They key determinant becomes the perception of management’s
ability to recognize when such changes need to be made and the execute on this
knowledge
- Viability of business opportunity assessed though the management team and its
underlying competencies and experience
- For new start-ups without experience – mentors and advisors with experience very
important
2. Uniqueness of the product/service offering
- Is product/service to be launched is a replacement product for existing market
offerings or something new that the market has not seen?
- Advantage - destroying innovation for competitors and rivals, unique need
currently not bing satisfied, unique intellectual capital (patents etc.), business
model innovation
3. Market size and opportunity alignment
- Potential size of the market and amount of time it will take for the business to no
longer rely on external capital to fund its operations
- Cash flow positive – the point in time when an organization is able to cover the
actual cash expenses of an operation from the revenue it generates
- Breakeven point – where total expenses = total revenue. The income statement,
which takes into consideration actual cash expenses and well as non-cash
expenses, results in profit = $0.
4. Current conditions within the market
- Advantage of start-up – underlying disruptive nature of the market sector being
targeted
- The greater the potential for market convergence, couples with the fast cycling of
technology through a given market sector, the riper the opportunities for
entrepreneurial start-ups.
- Extend to which existing competitors are entrenched within a given business
model and opportunity to disrupt this model
5. Investment hypothesis (business plan)
- Start-ups are much more about how to create a sustainable business rather than
just creating products
- Inflection points - decision points where the current path a business is taking is
assessed relative to where the company is and where it should be
- Ability to not only create business plan but reassess and adjust along the way,
business plan is really only a hypothesis
Business Plan (fig. 7.4)
1. The business
2. The opportunity given market and competitive conditions
3. The strategy
4. The management expertise
5. Operation-based and marketing-based
tactics
6. Financial validations and projections
7. Why the business will succeeds
Business Plan Rules
1. Know your customers
2. Know why you will win
3. Know how you will win
4. Know what it will take to win
5. Demonstrate why others should believe in
you
Franchises
- Reduced risk (in theory) compared to a new start-up
- Offers brand recognition, proven operating plan, training and support etc.
- But franchisees have to pay upfront fee, one-time start-up costs such as equipment and
inventory, plus royalties (ex. Tim Horton’s 4.5%), have unencumbered access to cash for
investment
- Significantly restricted freedom, reduced control over products/services, operating hours,
protocol etc.
Document Summary
Chapter 7 entrepreneurship and forms of business. Entrepreneur a person who starts a business and is willing to accept the risk associated wit investing money in order to make money. Venture capitalist an individual who provides capita to a business venture for start-up or expansion purposes. What i takes to develop a successful business (fig. Investors know that business plans, although a good starting point, often change as the business evolves. They key determinant becomes the perception of management"s ability to recognize when such changes need to be made and the execute on this knowledge. Viability of business opportunity assessed though the management team and its underlying competencies and experience. For new start-ups without experience mentors and advisors with experience very important: uniqueness of the product/service offering. Advantage - destroying innovation for competitors and rivals, unique need currently not bing satisfied, unique intellectual capital (patents etc. ), business model innovation: market size and opportunity alignment.
