Seminar in Business Plan Development Instructor: Dr. William J. Tsai, Ph.D. The Entrepreneurial Process.

Seminar in Business Plan Development

Instructor: Dr. William J. Tsai, Ph.D.

The Entrepreneurial Process

Definition of an Entrepreneur

An Entrepreneur is someone who relentlessly pursues and opportunity without regard to resources currently under his/her control.

Perspectives on the Nature of Entrepreneurship

Creation of Wealth: Assuming of the risks associated with the facilitation of production in exchange for profit.

Creation of Enterprise: Founding a new business venture where none existed before.

Creation of Innovation: Combining unique resources that make existing methods or products obsolete.

Creation of Change: Adapting one’s personal repertoire, approaches, and skills to meet different opportunity sets.

Creation of Employment: Employing, managing and developing the factors of production, including the labor force.

Creation of Value: Creating value for customers by exploiting untapped opportunities.

Creation of Growth: Having a strong and positive orientation towards growth sales, income, assets, and employment.

The Entrepreneurial Process

Identify an Opportunity Develop and Refine the Concept Assess and Acquire the Necessary

Resources Implementation Manage and Harvest the Venture

Entrepreneurship

〝 The reasonable man (woman) adapts himself/herself to the world; the unreasonable one persists in trying to adapt the world to himself (herself). Therefore all progress depends on unreasonable men (and women)〞

George Bernard Shaw Men and Supermen〝 The role of the entrepreneur is to stand up to all, to

stand up to ridicule〞 - Tom Peters Thriving on Chaos

Inputs to the Entrepreneurial Process

Environmental Opportunities Entrepreneurial individual (s) An organizational context Unique business concepts Resources

Outputs of the Entrepreneurial Process

A going venture Value creation New products, services and

processes Profit and/or personal benefits Employment, asset and revenue

growth Failure/Loss

Lifestyle Ventures

Business built around lifestyle of founders Generating income to support desired lifestyle Controlled growth to maintain desired lifestyle Harvest concerns focus on retirement issues Usually self-funded; or family and friends Not conducive to angel or VC financing

Entrepreneurial Ventures

Business designed to yield capital gains Short-term income is of a lesser concern Focus is on value creation Harvest concerns focus on ROI Self-funding; followed by equity-funding Attractive to angel or VC financing

Seminar in Business Plan Development

Instructor: Dr. William J. Tsai

Opportunities and Concepts

Opportunity

Favorable circumstances pointing to a need Ability to improve something at a profit Better, faster, cheaper / Brave new world Existence of〝 pain〞 that can be removed Fixing an unsatisfactory situation Timing is critical

Types of Opportunities

PerennialCheaper, quicker, higher, quality, more reliable, incrementally better

Occasional Supply withdrawn, demand surge, new market segment, market holes

Multiple Cause More elderly with more income and more time on their hands

Multiple EffectIncreased longevity creates need for…, domestic terrorism creates need for…,

Finding Opportunity

Deliberate or active search, or

A〝 discovery〞 process as one pursues everyday life or a business idea

Examples of sources of Opportunity

Rule change

Demographic change

Underserved markets

Poorly served markets

Social trends

New customers to a market

Increasing usage rates

Shortages New technologies

to address unmet needs or change ways needs are met

Why would something not be a good opportunity?

No market need Customers not dissatisfied Customer loyalty very strong Customer〝 switching costs〞 Customers hard to reach Intense competition Easy for people to enter after you Customers too demanding relative to

what they’ll pay Window not open

Business Concept or Idea Specific value-creating method for

capitalizing on the opportunity New product, new service or new

process The〝 unique combination〞 that

defines how much value a customer is getting---can include price, distribution, packaging, etc.

Concept statement should be:

Concise and to the point

CNN’s concept might be stated a〝 instant information, anytime, from anywhere〞

Where do business concepts/ ideas come from?

Geographic transfer Prior employment Teaming with

inventors Hobbies Social encounters Everyday

observation

Aha experience Obtaining rights Daydreams Customer requests Invitation Deliberate search Necessity (mother of invention)

What is a good concept?

Many criteria exist (e.g., profit potential, leads to stream of products, barriers to entry, comprehensive, internally consistent)

But let’s focus on three core criteria

• Overt benefit

• New and different

• Reason to believe

Opportunity versus Concept/Idea Opportunity Labor shortage in fast food

industry (unskilled services in general)

High employee turnover in fast food restaurants

Lousy/inconsistent service Business Concept:

Hire and train high school students; act as outsourced labor supply to local Burger King franchisees

Opportunity versus Concept/Idea Opportunity

Business Concept:

On-line business that does customized greeting cards for all of your customers

Salespeople need to build relationships that are one to one: need ways to do so at a reasonable cost

The opportunity Matrix

Highly Competitive

Most small Small

Business Enterprises

HIGHPOTENTIAL VENTURES

The BlackHoles

Known Concept

Novel Concept

BIG

SMALL

REVENUE POTENTIAL

Qualities of an Opportunity

Durable Timely Creative or adds value Offers sustainable competitive

advantage Economics are rewarding and

forgiving

Criteria for Evaluating Venture Opportunities

Industry and market Economics Harvest issues Competitive advantage issues Management team Fatal Flaw issues Strategic Differentiation

Seminar in Business Plan Development

Business Model and Revenue Streams

The Core Components of a Business Model

How do we create value? Who do we create value for? What is our source of competence /

advantage How do we differentiate ourselves? How we make money? What are our time, scope and size

ambitions?

How do we create value?(Factors related to the offering)

Primarily products/primarily services/heavy mix Standardized/some customization/high

customization Broad line/medium breadth/narrow line Access to product/product itself/product bundled

with other firm’s products / services Internal manufacturing or service

delivery/outsourcing / licensing reselling / value added reselling

Direct distribution / indirect distribution (single or multiple channel)

Who do we create value for?(market factors)

Type of organization Local/regional/national/

international Where in value chain; upstream

supplier/downstream supplier/ wholesale/retail/ serve

Broad or general market niche

What is our source of competence advantage? (Internal capability factors)

Production / operating systems Selling / marketing Information management / mining / info.

Packaging Technology / R&D / creative or innovative

capability/ intellectual Financial transactions Supply chain management Networking / resource leveraging

How do we differentiate ourselves? (Competitive strategy factors)

Image of operational excellence / consistency / dependability

Product or service quality / selection / features / availability

Innovation leadership Low cost / efficiency Intimate customer relationship/

experience

How we make money (economic factors)

Pricing & revenue sources: fixed / mixed / flexible

Operating leverage: high / medium / low

Volumes: high / medium / low Margins: high / medium / low

What are our time, scope and size ambitions? (Personal / investor factors)

Subsistence model Income model Growth model Speculative model