CHAPTER 1: INTRO TO

ENTREPRENEURSHIP
WHAT IS ENTREPRENEURSHIP AND WHY IS IT
IMPORTANT?
 Describe people who take risk, from French word “entre” (between) and “prendre”
(take on the risk)
 Entrepreneurship defined as: Process by which individuals pursue opportunities
without regard to resources they currently control for the purpose of exploiting future
goods and services OR the art of turning an idea into a business

WHY DO PEOPLE BECOME ENTREPRENEURS?

BE THEIR OWN BOSS
o Does not mean entrepreneurs are difficult to work with, it could be because
they have long-term aspirations they want to achieve and they believe they
cannot achieve it within their current working environment or they want to
start their own firms
o Some gradually transition from working in a traditional work setting to
owning their own business

PURSUE THEIR OWN IDEAS

o People want to have their ideas realized; corporate entrepreneurs have an
outlet for their idea to become known.
o However, some corporate firms resist innovation; when this happens, good
ideas go unfulfilled and some employees may choose to leave and start their
own firm
o Can also start business based on their hobby, like photography, painting, etc.
or to innovate and fill a gap in the marketplace

PURSUE FINANCIAL REWARDS

o People start their own firms to pursue their own financial rewards, this is
however a secondary motivating factor
o However, most entrepreneurs do not make more money than someone with
and equivalent traditional jobs
o Entrepreneurs state that the growth and financial rewards can be bittersweet,
because it may lead to them losing grip of their firm/business/company
CHARACTERISTICS OF A SUCCESSFUL ENTREPRENEURS
PASSION FOR BUSINESS
o Frequently the most common thing that gets a business off the ground is their
passion for business
o Making a difference in people’s lives is the primary motivator behind many
social enterprises
o Important for for-profit and non-profit businesses to have a passion for
business
o Primary reason it is important:
REASON PASSION IS EXPLANATION
IMPORTANT
The ability to learn Need to solicit feedback, make necessary changes and
and iterate move forward. Needed changes are not always
obvious.
A willingness to Commonly they work longer hours than people in
work hard for an traditional jobs. Can only do that on a sustained basis
extended period of if you are passionate about your business
time
Ability to overcome Will always experience setbacks from potential
setbacks customers, investors and others.
Ability to listen to Need to be willing to listen to others when they give
feedback you advice and feedbacks.
Perseverance and This comes from passion.
persistence
o Most effective business ideas take hold when their passion is consistent with
their skills

PRODUCT/CUSTOMER FOCUS
o Involves the diligence to spot product opportunities and see them through to
completion

TENACITY DESPITE FAILURE

o Because the entrepreneur is trying to something new, the possibility of failure
always exists
 o The litmus test for entrepreneurs is their ability to persevere regardless of the
setback they have experienced
o They also need to be able to overcome personal setback alongside their
professional, as the demanding hours may result in not being able to see their
family or friends

EXECUTION INTELLIGENCE
o The ability to fashion a good idea into a viable business idea is one of the most
important characteristics of an entrepreneur
o This is most likely the factor that determines if a new start-up will succeed or
fail.
o The ability to effectively execute a business idea means developing business
partnerships, managing finances, leading and motivating employees
o The hardest time for an entrepreneur is shortly after the firm opens
o A way early stage companies learn execution intelligence is by participating in
start-up incubator and accelerator programs

COMMON MYTHS ABOUT ENTREPRENEURS

MYTH 1: ENTREPRENEURS ARE BORN, NOT MADE
o Based on the notion that some people are genetically predisposed to become
entrepreneurs
o Studies show this is not true, entrepreneurs are not genetically different from
non-entrepreneurs
o However, there are personality traits and characteristics that are commonly
associated with entrepreneurs, these traits are developed over time

MYTH 2: ENTREPRENEURS ARE GAMBLERS

o Entrepreneurs are usually moderate risk takers, as are most people
o Finding is affirmed by The Hartford’s study
o Idea that entrepreneurs are gamblers originates from two sources; less
structured jobs, more uncertain possibilities that a normal job, have a strong
need to achieve the goals they have set

MYTH 3: ENTREPRENEURS ARE MOTIVATED PRIMARILY BY MONEY

o Some entrepreneurs say that only focusing on money is often distracting

MYTH 4: ENTREPRENEURS SHOULD BE YOUNG AND ENERGETIC

 o Entrepreneurial activity is spread-out over-all age ranges, spread out quite
evenly

MYTH 5: ENTREPRENEURS LOVE THE SPOTLIGHT

o Some entrepreneurs are indeed flamboyant, vast majority do not want to be in
the spotlight, they try to avoid public spotlight, as they are working on
proprietary products and services

TYPES OF START-UP FIRMS

Types of Start-ups
Salary Substitue Firms Lifestyle Firms Entrepreneurial Firms

Small firms that yield a Firms provide owners the Firms that bring a new
level of income for the opportunity to pursue product or service to the
owner, that is similair to particular lifestyle and market by creating and
what they will make in a make it a living while doing seizing opportunities
traditional job it regardless of the resources
they currently control
THE POSITIVE EFFECTS OF ENTREPRENEURSHIP AND
ENTREPRENEURIAL FIRMS
Organization Description
3 Day Start-up Offers 3 Day program to help students kick start their company
Collegiate Premier entrepreneurship network with chapters on more than 240
Entrepreneurs’ college campuses
Organization
College Start-up Independent start-up news site dedicated to covering entrepreneurial
people, companies and events emerging from college campuses
Dorm Room Fund Student-run venture fund that invests in student-initiated start-up, back
by First Round Capital
Entrepreneurs’ Global business network of 9500 business owners runs the annual
Organization Global Student Entrepreneur Award Program
Startup Weekend 54-hours events where entrepreneurs shares ideas
Collab Finder Web platform
VentureWell Non profit that funds and trains the faculty and student innovators to
create new businesses

ECONOMIC IMPACT OF ENTREPRENEURIAL FIRMS

 Innovation is the process of creating something new, this is central to the
entrepreneurial process, small innovative firms are 16 times more effective than large
innovative firms i.t.o. of patents per employees
 Entrepreneurial firms are a huge source of job creation
 It is not the size of the firm, but the age of a firm, companies less than 1 year old has
created mote than 1.5 million jobs over the last 30 years

ENTREPRENEURIAL FIRMS’ IMPACT ON SOCIETY

 E.F. have a dramatic impact on society
 Their products & services can enhance our daily lives and make things easier and
improve our health and lives
 But this can create moral and ethical issues that we have to grapple with, tracking
purchases and bio-engineering

ENTREPRENEURIAL FIRMS’ IMPACT ON LARGER FIRMS

 Impact the effectiveness of larger firms
 Smaller firms may manufacture the products the larger firms they use in their own
products they manufacture and sell
  Some firms have built their entire business models around producing products that
increase the effectiveness of the larger firms

THE ENTREPRENEURIAL PROCESS

1. Decision to become and entrepreneur
 People become entrepreneurs to be their own bosses, pursue their own
business ideas, pursue financial rewards
2. Developing successful business ideas
 Many new businesses fail because there was not a real opportunity to begin
with
 Developing a successful business idea includes: opportunity recognition,
feasibility analysis, development of a effective business model, industry
analysis, and writing a business plan
 A business plan is a recipe on how it creates, delivers and captures value for its
stakeholders
3. Moving from an idea to an entrepreneurial firm
 First step in turning an idea into reality is to prepare an ethical and legal
foundation for a firm, including selecting the appropriate form of business
ownership
4. Managing and growing an entrepreneurial firm
 All firms must be managed and grown properly to ensure their ongoing
success
CHAPTER 2: RECOGNIZING
OPPORTUNITIES AND GENERATING IDEAS
DIFFERENCES BETWEEN OPPORTUNITIES AND IDEAS
 An opportunity is a favourable set of circumstances that creates a need for a
new product, service or business
 Starts in one of two ways: Externally stimulated or by an opportunity gap
 Externally stimulated: Entrepreneur seizes an opportunity and starts a business
based on that
 Opportunity gap: Creates a business to address the problem or fill the
identified gap
 It is tough to spot a new opportunity
 Sometimes make the mistake of taking an existing product/service that they
are passionate about and building business around that
 Keys to spotting an opportunity:
o Attractive
o Timely
o Durable
o Anchored in a product/service that creates or adds value for the buyer
or the end-user
THREE WAYS TO IDENTIFYING OPPORTUNITIES
Observing Trends – Solving a Problem – Finding Gaps in the Marketplace

OBSERVING TRENDS
 Observe trends and study how they create opportunities for entrepreneurs to pursue
 Most important trends are: Social, Economic, Technological Advances, and Political
and Regulatory changes
 Important to remain aware of changes in these areas
 Two caveats to keep in mind when observing environmental trends when starting a
new business:
o Important to distinguish between trends and fads
o All 4 environmental trends are interconnected, yet they are discussed
separately
 Economic Forces:
o Is consumer spending rising or falling? Are housing starts up or down? Is
international trade strong or weak? Are interest rates stable, falling or
increasing?
o Is consumer spending rising?
 If personal income is rising the consumer spending tends to rise with it,
as individuals have more disposable income to spend on goods and
services.
 If personal income is dipping consumers are less likely to spend the
money they have, this opens up opportunities for new businesses that
can help consumers save money.
 Personal income also affects what consumers spend their money on, if
the income rises people are more likely to spend money on luxuries; if
income is falling, consumers will spend money on necessities rather
than luxuries.
 Social Trends
o Often the reason for a product/service existing is that is fulfilling a social need
(fast food saves time for people that are busy, MrD delivering for people who
are too lazy to leave their homes)
o Social trends change how businesses and people behave and how they set their
priorities:
 Aging of population
 Increasing diversity of workplace
  Millennials entering the workspace
 Emphasis on clean forms of energy
 Migration of people from rural to cities
 Technological Advances
o Frequently dovetail with social and economic changes to create more
opportunities
o
o Also help people perform everyday tasks in more convenient ways
o When a form of tech is created it offers opportunities to advance the tech or to
create accessories for it (phone cases where never a thing until phones came
into existence and someone saw the opportunity)
 Political and Regulatory changes
o This can also provide basis for new ideas and spur on start-ups
o Certain industries sometimes hinge on new government regulations evolve
that can benefit the industry of be detrimental to the industry (like new safety
standards that have to be implemented)
o Political changes also endanger new business and product opportunities

SOLVING A PROBLEM
 Second approach is recognizing a problem and finding a solution to that problem
 Problems can be recognized by observing the challenges that people face everyday
 Many companies have been started by people who have faced a particular challenge
in their lives (the company they started solves their own problem)
 Technological advancements create a problem for people who cannot use the
technology in the intended matter (disability mainly)
 Some business ideas are gleaned by recognizing problems that are associated with
new trends

FINDING GAPS IN THE MARKETPLACE

 Third source of business opportunities
 Items that people want/need that are not available
 Large firms such as Walmart and Costco work on economies of scale, but this leaves
gaps in the market for small to medium sized firms to fill the gaps, such as boutiques,
these companies carry items that are not sold in large enough quantities at the larger
firms
PERSONAL CHARACTERISTICS OF THE ENTREPRENEUR
 There are some characteristics that make someone better at recognizing an
opportunity than others
 Opportunity recognition refers to perceiving the potential profitability of a new
business, product or service

PRIOR INDUSTRY EXPERIENCE

 Prior experience in an industry makes an entrepreneur more likely recognize an
opportunity and thus more likely to succeed
 It is one of the five criteria needed to succeed (a genuine need; adequate resources;
buying customers; and a sound business model)
 May help them to spot a specific market niche that is being underserved (recognizing
an opportunity)

COGNITIVE FACTORS
 Entrepreneurs have a “sixth sense” called entrepreneurial alertness, that allows them
to see opportunities that others may miss
 Entrepreneurial alertness: “ability to notice things without engaging in deliberate
search”

SOCIAL NETWORKS
 Extent and depth of a person’s social network affects their opportunity recognition
 Larger social network exposes you to more ideas and thus more potential business
opportunities
 Network entrepreneurs have slightly more opportunities than solo enrepreneurs

CREATIVITY
 The process of generating a novel or useful idea
 Stages of the opportunity recognition process:
 background, experience, and knowledge that an entrepreneur brings to the opportunity recognition process
Prep 50-90% of start up ideas come from prior work experience
erati
on

stage where a person considers the idea or thinks about a problem

Incu this can be a consious or unconsious activity
batio
n

is a flash of recognition where the idea is born or the solution for a problem comes to light
Insig experience sometimes pushes this process forward, sometimes it prompts the individual to return to the prep stage
ht

idea is subjected to scrutiny and analyzed for its viablilty

Eval forces the individual to take a non-bias look at the idea, can be a difficult stage
uatio
n

Stage where the idea is put into its final form

Elab details are worked out and the idea is transformed into something of value, product, servie or business concept
orati
on

TECHNIQUES FOR GENERATING IDEAS

BRAINSTORMING
 Brainstorming: The process of generating several ideas about a specific topic
 Can range from a person sitting down with a pen and paper just jotting down random
ideas relating to a topic or a formal brainstorming session
 Formal brainstorming session: one person gives an idea, person 2 reacts that, person
3 reacts to the reaction and so it goes on, usually uses a flip chart
 Lively and not used for decision making
 Rules for a formal brainstorming session:
RULE EXPLANATION
1 No criticisms, laughing, facial expressions
2 Freewheeling; carefree expression of ideas; more ideas the better
3 Session moves fast, nothing is allowed to slow the momentum
4 Leapfrogging is encouraged, using one idea to create a new one
 Person’s imagination is the only limiting factor

FOCUS GROUPS
 Gathering of 5-10 people who are selected because of their relationship to the issue
being discussed
 Usually involve people who are familiar with the topic being discussed, who are able
to shed light on the issue in a give-and-take manner, they usually respond to
questions being asked
 Work best as a follow up to brainstorming, when the idea has been created but further
reinforcement is required
 Moderator’s job is to keep the group focused and engaged in the discussion
CHAPTER 3: FEASIBILITY ANALYSIS
PRODUCT/SERVICE FEASIBILITY ANALYSIS
 Process of determining is a business idea is viable
 If it falls short of one or more of the criteria it should be dropped or rethought, some
make the mistake of coming up with an idea and then directly jump into creating the
business model
 It is an assessment of the potential business, not necessarily the product or service
Part 1: Product/Service Feasibility
A. Product/Service desirability
B. Product/Service demand
Part 2: Industry/Target Market Feasibility
A. Industry attractiveness
B. Target market attractiveness
Part 3: Organizational Feasibility
A. Management prowess
B. Resource sufficiency
Part 4: Financial Feasibility
A. Total start-up cash needed
B. Financial performance of similar businesses
C. Overall financial attractiveness of the proposed venture
Overall assessment

PRODUCT/SERVICE DESIRABILITY
 First component is to affirm that the propose product/service is desirable and serves a
need in the marketplace
 Ask yourself:
o Is it reasonable? Does it make sense? Will consumers buy this?
o Does it take advantage of an environmental trend?
o Is this the right time to introduce it into the marketplace?
o Are there any fatal flaws in the basic design concept?
  Concept Test:
o Showing preliminary description of the product/service to prospective
customers and experts to solicit feedback
o Usually includes:
 Description of product or service
 The intended target-market
 Description of how the product/service will be positioned relative to
the competitors
 Brief description of the management team
o Should be shown to at least 25 people familiar with the industry

PRODUCT/SERVICE DEMAND
 Methods for determining the demand for a product/service:
o Talking face to face
o Utilizing online tools like landing pages and google adwords
o Gumshoe research, libraries and the internet
 Talking face to face:
o The idea is to gauge the customer’s reaction to the general concept
o Think about who the potential customer is, those are the people you want to
talk to (if you are creating a new line of cellphones, you will likely speak to
young adults)
o A good way to find people to talk to is to contact trade associations relevant to
the product, you want to do something in construction, call them up
 Online tools to assess demand:
o Surveys, Q&A sites and conducting online market research
o Surveys are a good way of validating what you have learned from the face to
face interactions you have had with potential customers
o Google trends allow you to see what people are googling the most
 Library, gumshoe research or internet:
o This a way of collecting secondary information on the industry; sales,
profitability of existing companies in this industry
o Do people buy products/services similar to what I am doing?
INDUSTRY/TARGET MARKET FEASIBILITY ANALYSIS
 An assessment of the overall appeal of the industry and the target market for the the
service/product being proposed
 The industry is a group of firms producing similar product or rendering similar
services (Ford, Ferrari, Hyundai)
 the target market is the space within the industry you want to appeal to

INDUSTRY ATTRACTIVENESS
 Characteristics that make an industry attractive:
o Young
o Early stage of life cycle
o Growing
o Not crowded
o Higher operating margins
 Some industries have such high barriers to entry that there are only a few high leve;
player

TARGET MARKET FEASIBILITY

 Segment within a larger market that reps a narrower group of consumers with similar
needs
 By focusing on a small segment, the startup can usually avoid going head-to-head
with the big dogs of the industry, until they have sufficient resources to expand
 Ideal is to find a large enough market for the proposed business, yet small enough to
avoid awakening the larger competitors
ORGANIZATIONAL FEASIBILITY ANALYSIS
 Conducted to determine if the business has the required management experience to
make the business work

MANAGEMENT PROWESS
 Should evaluate the ability of the initial management team
 Needs the members to honest and candid in their self-assessments
 Important for the members to be passionate about the business idea and they need to
understand the industry in which the business take place

RESOURCE SUFFICIENCY
 Determining if the firm has the capability of obtaining the relevant resources required
to move forward
 Identify important, non-financial, resources and assess the availability
 Key workers, intellectual property protection
 To test the sufficiency the firm should have 6-12 vital resources it needs to move
forward and to see if they are available

FINANCIAL FEASIBILITY ANALYSIS

TOTAL START-UP CASH NEEDED
 Total cash needed to prep the business and make the first sale
 An actual budget should be prepped
 Explain where the required funds will come from
 If the money comes from debt, repayment plans need to be included
 It is better to overestimate the cost than to underestimate it

FINANCIAL PERFORMANCE OF SIMILAR BUSINESSES

 To estimate the potential financial performance, the firms need to be compared to
other established firms that do similar things
 Archival data can be used, such as past financial statements that are publicly available
 Challenge is to find the financial performance of a smaller firms
OVERALL FINANCIAL ATTRACTIVENESS OF THE PROPOSED VENTURE
 Evaluation of the attractiveness is based on the projected sales and rate of return
 The projected financial at this stage is a judgment call
 The projected financials are compared against:
o Amount of capital invested
o Risks assumed in launching new business
o Existing alternatives for the money being invested
o Existing alternatives for the entrepreneur’s time and efforts
CHAPTER 4: DEVELOPING AN EFFECTIVE
BUSINESS MODEL
BUSINESS MODELS AND THEIR IMPORTANCE
 Business model is a plan on how it creates, delivers, and captures value for its
stakeholders
 Important elements of a firm’s business model:
o Target market
o Basis for differentiation
o Key assets

Flesing out the

Initial validation
Prep of the operational
of the business
business model details of the
idea
company

GENERAL CATEGORIES OF BUSINESS MODELS

Standard Business Model and Disruptive Business Model

STANDARD BUSINESS MODEL

 Most commonly used business model by existing firms and by upcoming firms
 Depict plans of how the firm will create, deliver, and capture value for the
stakeholders
 Examples of standard business models:
o Advertising – providing access to highly targeted customer niches - Google
o Auction – provide space for people to auction items - eBay
o Bricks & Clicks – integrates offline and online presences – Apple
o Franchise – licenses the trademark of a successful product of service – KFC
o Freemium – offer basic version and premium version with more features –
dropbox
o Low-cost – driving down costs and servicing many people – Makro
 o Retailer – manufacturer produces and sells - Tesla Motors
o Peer-to-peer – business acts as matchmaker – AirBnB
o Razor & Blades – one item sold at discount but the accompanying product is
sold a higher price – Games (razor) & Consoles (Blades)
o Subscription – pay to access the service, monthly – Netflix
o Trad retailer – sell products made by others – Amazon

DISRUPTIVE BUSINESS MODEL

 Rare form of business model
 Does not fit in the standard business model frame work
 Non traditional business, creating a disruption in the market
 Low-end market disruption:
o When the firm creates the products that exceed the needs or desires of the
customers, this creates a vacuum that can be filled with low cost alternatives.
Like Ryan Air in Europe
o Introduced to offer a simpler, cheaper, or more convenient way to perform an
everyday task
BARRINGER/IRELAND BUSINESS MODEL TEMPLATE
 Business Model Canvas creates a way to show the logic to how a firm will create,
deliver, and capture value for the stakeholders; has 9 parts
 The Barringer/Ireland Business Model consist of 12 parts with 4 major categories, this
allows entrepreneurs to describe, project, revise and pivot a business model until all
parts are decided upon

CORE STRATEGY
 How the business plan to compete relative to its competitors
 Business mission, basis of differentiation, target market, and product/market scope are
the basis of this
 Business Mission:
o Describes why the business exists and what its business model should
accomplish
o Can act as the financial and moral compass of the business if written right
o Shows how the firm will create value for the stakeholders
o Rules or thumb for a business mission:
 Define the reason for being
 Describe why the business is different
 Be risky and challenging but achievable
 Use a tone that reps the firm’s culture and values
 Convey a passion and stick in the mind of the reader
 Be honest and not claim to be something the company is not
 Basis of Differentiation:
o Needs to clearly articulate how they will differentiate their products from the
competitors
o This element is what causes customers to choose one product over the other
o Ensure the differentiating factor is based on benefits rather than features
 Target Market
o Most firms start by serving an underserved niche market, not a broad market
o Should be make explicitly clear in the business model
  Product/Market Scope
o Defines the products and markets on which they will concentrate
o Most start narrow and expand with time
o Company should be very clear about the initial product/market scope and
project 3-5 year into the future in terms of anticipated expansion

RESOURCES
 At a basic level the firm must have enough resources to enable its business model to
work
 Business may need expertise is some areas to better understand the needs of their
target market
 The resources; tangible and intangible; must be hard to imitate and hard to find a
substitute in order for the business model to be competitive over the long-run
 Core Competencies:
o A specific factor of capability that supports a firm’s business model and sets it
apart from their rivals
o Can take various forms, such as:
 Technical knowledge
 An efficient process
 Trusting relationship with customers
 Passion for business
 High employee morale
o The core competencies largely determine what the business can do
o The business has to be particularly good at certain things that support all the
elements of the business model
 Key Assets:
o These are the assets the business owns that enables their business model to
work, the assets can be financial, physical, intellectual, or human
FINANCIALS
 This is the only section that describes how the firm earns money, this makes it
extremely important
 Revenue streams:
o Describes the ways in which it will make money
o Some businesses have single revenue streams, some have multiple
o Businesses can also make money from single payments, recurring paymenets,
or sell premium versions of their base item (think free to play games, they
have microtransactions)
o The number and nature of the revenue streams have a direct impact on the
business model
 Cost Structure:
o Shows important costs that are incurred to support the business model
o It costs money to develop a basis of differentiation, develop core
competencies, acquire or develop key assets, and form partnerships
o Goal is to: Identify whether the business is a cost driven or value-driven
business, identify the nature of the business’s costs, and to identify the
business; major cost categories
o Also important to determine the role of costs in a business
o Cost driven business: Focus on minimizing costs
o Value-driven: focus on delivering high-quality goods and services
o Also need to determine the nature of the business costs, is it fixed or variable
cost structure
o Fixed costs: remain the same irrespective of the amount of good being
produced (rent, power)
o Variable costs: Fluctuate with the amount of good being produced
o Business needs to identify their major cost categories: what are the biggest
cost going to be
 Financing/Funding
o Many business models rely on a certain amount of funding/financing
o Most business incur costs before they start generating revenue
o The business model should include the amount of financing that will be
needed if the entrepreneur cannot draw from personal funds
 o 3 types of costs that need to be considered:
 Capital costs – property, equipment, cars, etc.
 One-time expenses – legal expenses
 Ramp-up expenses – period where the business loses money until it
becomes profitable

OPERATIONS
 This represents the day-to-day happenings in the business
 Product/Service Production:
o How the product/service is produced (in-house or is it external)
o This decision has a major impact on the business model
o This will determine if the business will require certain key competencies or
assets and it will also determine the size of the up-front investment, as
producing in-house will require the business to purchase equipment
o If produced out-house the business needs to find a suitable contract
manufacturer
o If a service is being rendered, the box needs to state what the service is and
how it will be provided
 Channels:
o Describes how the product or service will be delivered to the customers, will it
be sold directly or through intermediaries or both
o Some firms employ sales-teams that call potential customers to try and close
sales
 Key Partners:
o A new business requires partners to help with areas the business is not
competent in or if they do not have the relevant expertise
o The first partnership a business may start is with a supplier, almost all firms
have supplies that form a vital part of the business model
o The new firm can also enter partnerships with other firms that can give them
access to new resources or to help them enter a new market (a movie franchise
adapting the film into a game)
o Most common types are:
 Joint venture – 2+ firms pooling resources to make a new firm
 Network – a main business organizing a web of interconnected
businesses
 Consortia – Group of firms that have a need, they band together to
solve that need
 Strategic alliance – combo of 2+ firms that have an exchange
relationship, not joint ownership
 Trade associations – firms of the same industry that help each other
CHAPTER 5: INDUSTRY & COMPETITOR
ANALYSIS
INDUSTRY ANALYSIS
 Entrepreneur needs to ask themselves 3 questions:
o Is the industry accessible?
o Are there markets that are ripe for innovation or that are underserved?
o Are there positions in the industry that will avoid the negative attributes of the
industry as a whole?
 At a company level, a firm’s position determines how the company is situated relative
to their competitors
 It is important for the firm to know the industry landscape before entering it

STUDYING INDUSTRY TRENDS

ENVIRONMENTAL TRENDS
 Industries often surge and wane due to the shifting in environmental trends in favour
or against certain products or services sold by firms in the industry
 Economic, social, technological, and political trends are the most important
environmental trends

BUSINESS TRENDS
 Firms in some industries benefit from outsourcing and low-cost labor in foreign
countries, while some do not have this benefit (fashion has this benefit, motorcars
aswell)
 Some firms have the ability to move their sales and customer procurement online to
save costs

THE FIVE FORCES MODEL (PORTER’S FIVE FORCES)

THREAT OF SUBSTITUTES
 It is more attractive if the threat of substitutes is lower, this means there are less
products and services from other industries that can be an alternative
 The degree to which subs suppress profitability depends on the propensity of the
customer to purchase an alternative (if butter is too much, buy margarine)
 Firms can offer customers amenities to reduce the likelihood of them choosing an
alternative (like creating a nice environment)
THREAT OF NEW ENTRANTS
 The lower the threat of new entrants the more attractive, this means it is not easy for a
new firm to enter a market and copy the working formula
 There are many barriers to entry:
o Economies of Scale – Industries that have large economies of scale are
relatively hard to enter, unless they (new firms) are willing at a cost
disadvantage.
o Product Differentiation – Industries that have strong brands are difficult to
enter (like the soda market, Coca-Cola dominates this), product innovation is a
way to differentiate products
o Capital Requirements – If large investments are needed to enter into a new
industry, it makes it difficult for new firms to enter (car industry)
o Cost Advantages Independent of Size – Established firms have a cost
advantage that is not linked to the size of the firm, new firms do not have this.
These advantages are usually grounded in the firm’s history (buying land now
is expensive as shit, but in the past, it was cheap(er))
o Access to Distribution Channel – It is hard to crack distribution channels,
established firms have got this down to a science, especially in crowded
markets
o Government and Legal Barriers – Knowledge intensive industries form
massive barriers to entry. Some require permission from the government, like
banks and broadcasting companies
 When a firm makes a new industry or finds a niche market, they need to create
barriers to entry to keep the threat low
 The biggest threat to new firms in new industries are big-money firms stepping in and
copying their idea (amazon does this with small businesses on their website)
 The best barrier to entry is to create a legal one, by having a patent, trademark, or
copyright

RIVALRY AMONG OTHER FIRMS

 This is usually the most important determining factor in profitability
 Some industries are so competitive that they compete my lowering prices to a point
where they make losses, this negatively effects the profits industry wide (even new
entrants)
  There are four determining factors of the nature and intensity of rivalries:
o Number & Balance of Competitors – The more competition in the industry,
the bigger the chances that one will cut prices to lure in more customers, this
has a snowball effect causing other firms to do the same, and thus causing the
price to drop and drop (customers love this, put it fucks the firms)
o Degree of Differences Between Products – The degree to which products
differ affects industry rivalry and in what way they will try to one-up the rivals
o Growth Rate of the Industry – The slower the growth the fiercer the
competition, the faster the growth the less fierce the competition.
o Level of Fixed Costs – Higher fixed costs mean the firms need to sell more
products to break even. Higher fixed costs make firms anxious and may lead
to price cutting

BARGAINING POWER OF SUPPLIERS

 More attractive if the supplier has less bargaining power
 Suppliers can suppress profits by raising their prices (higher bottom line) or reducing
their quality (less sales for firm)
 Factors that impact suppliers’ bargaining power:
o Supplier Concentration – If there are only a few suppliers, they have the
advantage (“if you don’t buy from me, where else can you go?”)
o Switching Costs – These are fixed costs firms incur when changing suppliers.
The higher the cost of switching, the less likely they are to switch suppliers.
o Attractiveness of Substitutes – Supplier has more bargaining power if there
are no adequate subs for the firm to utilize if the supplier decides to fuck with
the firm. (if you buy computer chips, intel is one of the few that make them,
don’t want to buy them, then okay BYE)
o Threat of Forward Integration – If the supplier decides to enter the firm’s
industry it creates a problem as they may raise the prices of refuse to sell to the
firm (as they are now the enemy)
BARGAINING POWER OF BUYERS
 More attractive if the buyer has less power
 The buyer can suppress profits by demanding higher quality goods (which is valid) or
they can demand price concessions (which is being a prick)
 Factors that influence buyer power:
o Buyer Group Concentration – If there are only a few large buyers they can
force the suppliers to lower prices and thus lower profits
o Buyer’s Costs – The more important the product is to a buyer the more
sensitive they are to the price
o Degree of standardization of a supplier’s products – If the supplier’s
product is not that unique, the buyer can be like a toxic in-law and play the
suppliers against each other to get the best price. But if the product is unique,
you can tell them to fuck off
o Threat of Backward Integration – The buyer can decide to enter into the
supplying firm’s industry to lower their own costs

THE VALUE OF THE FIVE FORCES MODEL

 This is used to assess the attractiveness of the industry, is a more in-depth and less
stringent analysis of an industry

TYPES OF INDUSTRIES AND THE OPPORTUNITIES THEY

OFFER
EMERGING INDUSTRIES
 This is a new industry wherein standard operating procedures have not been
established yet
 Firm that takes leadership often captures the first-mover advantage (they are first at
the party and can thus drink more) this is sometimes an insurmountable advantage and
thus establishes a significant position in a new market
 However any opportunity may be short-lived as there is a level of uncertainty, but
there are low barriers to entry and no established rivals

FRAGMENTED INDUSTRIES
 Large number of firms of relatively equal size
 Opportunity is to consolidate and become an industry leader, usually done via a
geographical roll-up (acquiring similar firms in different areas), like having 20
different petrol stations and one oak coming in and buying them all and changing it to
caltex
MATURE INDUSTRIES
 An industry experiencing sloe/no increase in demand, has numerous repeat customers
and limited product innovation
 Is attractive as there is a vast market if the new firm can bring a new innovative
product to the market and thus revitalize the industry (like the milk industry; “okay so
we have skim milk, 2% milk and full cream milk, nothing more to do, then some
weirdo says we can make milk from beans, nuts and oats – BOOM new product)

DECLINING INDUSTRIES
 Industries that are declining in sales, customer and innovation as there are better
replacement (like DVDs, who the hell uses DVDs anymore)
 Usually shy away from declining industries, but there can be a chance to make a
monopoly from this, like what that French circus did
 Use 1 of 3 strategies in declining industries:
o Leadership Strategy – Try to become the dominant player in the industry
o Niche Strategy – Pursuing a narrow market segment that might grow (like the
vinyl industry, I still listen to vinyl)
o Cost Reduction Strategy – Having lower costs than rivals by making their
processes better, allowing the firm to have a higher profit margin

GLOBAL INDUSTRIES
 Firms can have multidomestic approach, meaning they vary the products depending
on the country (McD has a different menu depending on the country, same with
automakers)
 Firms can also have a global strategy where everyone gets the same (like
communism, LOL JK) they have the same basic approach in every country

COMPETITOR ANALYSIS
 When the firm has an understanding of the industry they are in they need to
understand who they are in the industry with (like being a drug dealer, you need to
know who you are going up against, will they hurt you or not)
IDENTIFYING COMPETITORS
 It is harder than you might think (I never thought it was easy) to find our who your
competitors are, as some firms may dabble in more than one business (like the
character John Cena plays in “Bad Moms” he sells everything from hard drugs to
prescription drugs, thus he is in the pharma business as well)
 There are different types of competitors:
o Direct Competitors – Firms that sell products that are identical or very
similar to your (KFC and Chicken Licken). These are the most important
competitors to know is you are new on the block, as you aim to poach the
customers from the competition
o Indirect Competitors – These are firms that sell a substitute product to your
(like an indirect competitor for firms that make pain pills are people that sell
heroin – yes heroin is an opiate, thus it is a pain med). So technically all drinks
companies are in competition with each other
o Future Competitors – There are companies that are not involved yet but that
can enter at any time
 It’s basically impossible for a firm to identify all their direct & indirect competitors,
let alone their future competitors (unless they have a pshycic on the management
team)
 Even if they have no direct competitors (thus an emerging industry) people are
hesitant to change, a product’s usefulness should rise above the price

SOURCES OF COMPETITIVE INTELLIGENCE

 A firm must understand the competitors’ strategies and behaviors, the collection of
this info is called competitive intelligence

COMPLETING A COMPETITIVE ANALYSIS GRID

 This basically just a compilation of all the info gathered about the competition
 It’s a mood board for how to beat the competition
CHAPTER 7: PREPARING THE PROPER
ETHICAL AND LEGAL FOUNDATION
ESTABLISHING A STRONG ETHICAL CULTURE FOR A
FIRM
 It’s important for the founder(s) of the firm to establish a strong ethical culture within
the firm
 There are four key metrics that provide insight into the ethical environment of a firm:
o Pressure to compromise the organizational standards – Warning for future
workplace misconduct
o Observed misconduct – Misconduct is the most basic indicator of the state of
the organization’s integrity
o Report observed misconduct – Do employees report misconduct if they see
it happening?
o Experience retaliation for reporting misconduct – Are employees who
report misconduct retaliated against (harassed, abused)

LEAD BY EXAMPLE
 This is the most important thing an entrepreneur can do, employees will mostly do
what the boss does, if the boss is unethical the employees will assume they can also
be, there are ways they can encourage ethical behaviour:
o Communicate that ethics is a priority
o Set a good example
o Keep employees in the loop
o Support following the rules
 Employees must also:
o Consider ethics before making a decision
o Talek about ethics while completing work
o Set a good example for fellow employees
o Support following the rules

ESTABLISH A CODE OF CONDUCT

 A C.o.C. is a formal statement of the organization’s values regarding social and
ethical issues
  The code of conduct provides specific guidance to everyone involved in the firm, on
what is expected of them in terms of ethical behavior

IMPLEMENT AN ETHICS TRAINING PROGRAM

 Firms employ ethics training programs (employees generally hate them) to help them
deal with ethical dilemmas and improve ethical conduct (ethical dilemma is
something that may be good for the firm & individual, but being unethical, like selling
things to bad people)
 These training programs can be done by outside vendor of in-house
 A firms should also be able to say “sorry, we fucked up” (but knowing big
corporations this is as useful as making a Catholic priest say he won’t touch kids
anymore)

DEALING EFFECTIVELY WITH LEGAL ISSUES

CHOOSING AN ATTORNEY FOR A FIRM
 It is important to choose an attorney as early as possible when starting a new business
venture
 How to select an attorney:
o Contact the local bar association and find local lawyers who specialize in start-
ups
o Interview them and check their references, also talk to their previous clients
o Choose an attorney, make sure they are patient as it takes time.
o Choose an attorney who can help you raise money for the venture
o Ensure the chosen one has a record of completing their work on time
o Talk about fees
o Trust your gut
o Learn as much about the start-up process as possible, stay in control

DRAFTING A FOUNDER’S AGREEMENT

 If there is more than one founder it is important to draft a founder’s agreement
  This document should have:
o The split of equity
o Split of profits
o How the individual founders will be compensated for the work they pit in to
get the firm started
o How long the founders should stay in for their shares to become fully vested
(permanent, this is so that they can just bail after the business opens)
o Should also include a buy back clause, should one of the founders want to buy
out the other one or should one of the founders leave the venture

AVOIDING LEGAL DISPUTES

 Most legal disputes arise from someone being sloppy, misunderstanding something of
a lack of knowledge about the law
 Steps to avoid legal disputes:
o Meet all legal obligations –
 Pay all people that you owe on time and also deliver good and services
at the agreed upon time
 If an obligation cannot be met on time, it should be communicated to
the relevant parties ASAP
o Avoid undercapitalization –
 If a business is starved for money, they are more likely to experience
financial issues (no shit sherlock)
 The firm should raise enough funds to conduct business or they should
stem their growth to conserve money
o Get everything in writing –
 Many disputes arise due to the lack of written agreements, people
make deal verbally and then expect the other party to be honest when a
dispute arises
 It may seem wise to do deals verbally to show that you “trust” the
other party, but that is just (fucking) stupid, because the slightest
misunderstanding can create a myriad of issues
 It is easier to resolve disputes if the agreement is in writing
 Firms sometimes require employees or other parties to sign NDAs to
keep them from divulging company secrets or noncompete contracts,
which bars them from working in the same industry for a certain
amount of time
 o Set standards –
 Should also set standards that govern employees’ behavior via a code
of conduct

OBTAINING BUSINESS LICENSES AND PERMITS

 Most businesses require licenses and permits to operate

FEDERAL LICENSES AND PERMITS

 Most businesses do not require a federal license to operate’
 Like if you sell alcohol, you need a federal license

STATE LICENSES AND PERMITS

 Most states have a guide to help you apply for the correct permits
 Business Registration Requirements
o Some places require you to register for a state specific business license. Need
to register the business; place the business on the radar of the relevant tax
authorities; make sure the business is aware of and complies with all relevant
regulation
 Sales Tax Permits
o You are required to collect VAT and pay it to the relevant authorities
o You must get a tax number from SARS

CHOOSING A FORM OF BUSINESS ORGANIZATION

SOLE PROPRIETORSHIP
 Simplest form of a firm
 One owner that gets all the profits and is personally liable for all the debts of the firm
 Has complete control
 Has nor continuity, if the owner dies the business is forced close until a new business
license is acquired
 It is difficult for the SP to raise capital because ownership cannot be shared
 Advantages:
o Cheap and easy to create
o Losses can be deducted from SP’s forms of income
o Not subject to double taxation
  Disadvantages:
o Relies on the skills of the owner at the start
o Liquidity of the owner could be low, thus having a small initial investment,
requiring the owner to get a loan

PARTNERSHIPS
 Form of org that has two or more people
 Basically, the same the sole proprietorship
 The partners are personally liable for the debts incurred, the split of profit is set out in
the partnership agreement
 There is a form of a partnership that have limited partners (silent partners) that have
no control (they give their money and shuts up)

PUBLIC COMPANIES
 The company is seen as a separate legal entity from the owners/shareholder
 The company is ran by the Board of Directors, they make the day-to-day decisions
about the business’ operations
 They are subject to double taxation (pays personal income tax from the distributed
profit and the company pays companies tax)
CHAPTER 8: ASSESSING A NEW
VENTURE’S FINANCIAL STRENGTH AND
VIABILITY
FINANCIAL OBJECTIVES OF A FIRM
 All for-profit firms have four financial goals:
o Profitability – A company’s ability to make profit
o Liquidity – A company’s ability to meet their short-term obligations
o Efficiency – How productively the firm utilizes its assets
o Stability – Overall health of the financial structure of the firm, as it relates to
the debt-to-equity ratio

THE PROCESS OF FINANCIAL MANAGEMENT

 To assess if the financial goals are being met the company relies heavily on the
financial statement
 Forecasts are estimates of the firm’s performance in the future (income, expenses and
capital expenditure), the previous financial statements are used to prep the budget for
coming years
 Process of financial management

Preperation of Income Statements

the Historic Balance Sheets
Financial Statement of Cahs
Flows
Statement

Preperation of Income
Expenses
the forecasts Capital expenditure

Preperation of Pro forma income

pro-forma statements
pro forma balance
financial sheet
statements pro forma cash flow

Ongoing analysis ratio analysis

measuring results v the
of finanacial plans
measuring results against
records the industry norms
CHAPTER 8: BUILDING A NEW VENTURE
TEAM
LIABILITY OF NEWNESS AS A CHALLENGE
 New ventures have a high propensity to fail, mainly due to the liability of newness,
people aren’t able to quickly adapt to their new roles

CREATING A NEW-VENTURE TEAM

 Those who start a new venture have an important role in shaping the business model
of the firm
 The firm’s business plan, that is derived from the business model, cannot get off the
ground unless they have a team of leaders and personnel that can execute the business
plan
 People are one factor that animates all others
 The way a founder builds a new-venture team sends an important message to all
potential investors, partners, and employees
 Some firms do not create advisory boards where others do
 The best way to impress investors and partners is to build the best team possible
(think The Avengers)


Key
Employees

Management Board of
Team Directors

FOUNDER(S)
OF A
VENTURE

Board of Other
Advisors Professionals

Lendors
and other
investors

THE FOUNDER OF FOUNDERS OF A VENTURE

 Their characteristics and their early decisions significantly affect the way the new
venture is received and the way the new-venture team takes shape
 The size of the founding team –
o They have to decide if they want to start the firm on their own or if they want
to build an initial founding team
o Teams bring more talent, resources, ideas, and professional contacts to the
firm than a solo entrepreneur, including more psychological support
o A lot can also go wrong for partnerships, as the level of work ethic, passion,
drive, and ideas may differ, and this can create friction in the work
environment
o Teams that have worked together before have an edge over newly formed
teams, as the members already understand each other
o If teams are heterogenous (diverse) as opposed to homogenous (similar), they
will have different views on many factors that affect a business (hiring
decisions, competitive activities, etc.), this leads to slower decision making as
everyone’s viewpoints needs to be discussed to avoid conflict, yet the debating
can lead to conflict
o Three potential draw-backs to having a team;
 Team members may not get along
 If two or more people start a firm as “equals” as when a formal
structure needs to be set conflict can arise (one may feel they deserve
to be the main boss), the investors may weigh in who they feel
should be the CEO, this may cause one partner to feel slighted
 If the partners have similar areas of expertise, this may cause
problems in other areas where they do not have expertise in
 Qualities of the founders –
o The knowledge, skills and values the founders bring to the table are the most
important resources to the firm early on
o New firms are judged on their “potential” rather than the assets they have
(they judge the founders)
o The level of education the founder(s) have is important as it is believed that
the entrepreneurial skill (skills, foresight, creativity, and computer skills) are
enhanced by obtaining a college degree (this is not true, a degree is just to
show you had the money and determination to do something, especially in the
business world)
o Experts also believe that it helps with communication and math if the
entrepreneur has a high level of education
 o Prior experience and networking enhance the chances of success
o Prior industry experience is important, especially in technical industries
o It is important to have a mature network of professional contacts, as they often
have to work their contact for funding or resources

THE MANAGEMENT TEAM AND KEY EMPLOYEES

 A way founders can prioritize hiring needs is to create and maintain a skills profile,
this is used to determine what skills are needed within the firm, using this they can
determine what set of skills hires need to have
 To save money, increase flexibility, and mitigate the difficulty of finding good
employees, the firm uses four ways of hiring:
o Full- or part-time employees: Someone who works for a business
permanently of just for a limited time period per week (part – 5hours a week),
they use the business’ location, tools and equipment according to the policies
o Intern: A person who works for the business as an apprentice or trainee for
the purpose of obtaining experience
o Contractor: Person who is in the business for themselves, not apart of the
firm, works with their own tool and equipment, performs services for many
clients, finishes when their work is complete
o Virtual assistant: Freelancer who provides administrative, technical or
creative assistance to clients remotely from a home office

ROLES OF THE BOARD OF DIRECTORS

 If the new venture decides to operates as a company, they legally require a Board of
Directors, the B.o.D. is appointed by the shareholders of the company
 A b.o.d. is made up of inside directors (they are an employee of the firm) and outside
directors (they are not employees of the firm)
 The have three formal responsibilities:
o Appoint the firm’s officers
o Declare dividends
o Oversee the affairs of the company
 The directors must place a strong emphasis that the firm is ethically run
 Established firms pay their directors director’s fees, new firms will most likely pay
them in company stock without any direct compensation
 They also provide expert guidance to the founders
  Provide Expert Guidance – Although they have a formal responsibility to govern the
firm, their most useful role is to give guidance and support to the founders. The key is
to pick a board with the relevant skills and prior experience to be helpful
 Lend Legitimacy – Well-known directors bring instant credibility to the firm (think a
well-established film director coming onto a new film project). Without a credible
signal, investors, customers will struggle to identify high-quality firms. This will
make investors more likely to invest in companies if the b.o.d has lots of clout and
raise funding

ROUNDING OUT THE TEAM: THE ROLE OF

PROFESSIONAL ADVISORS
BOARD OF ADVISORS
 Advisory board provide start-ups with direction and advice
 An advisory board is a panel of experts who are asked by the firm’s managers tor
provide counsel and advise on an ongoing basis
 The advisory board has no legal responsibility the firm and gives non-binding advice
(basically; “if I were you, I would do this, but I don’t know lol)
 Can be established for a specific need or just to be there
 They lend legitimacy to the firm, they can make high-level introduction to early
customers, suppliers and business partners
 Usually between 5-15 members
 Some meet online, but some meet at the company’s HQ
 The firm can have multiple advisory boards relating to multiple issues

LENDER AND INVESTORS

 They have a vested interest in the business, lenders want their money back and
investors want a return on their investment
 They will also want to play an active role in the business, to ensure they get a return
 The amount of time and energy they put into a firm is relative to the amount of money
they have invested into the firm
 If the loan is well secured they will not interfere too much, but venture capitalists
(high risk business that) may want to have an active role in the business
OTHER PROFESSIONALS
CONSULTANTS
 They give expert/professional advice
 New ventures vary in how much they use business consultants
 If the founders have little expertise in a certain area, they might look into getting help
from a consultant
 It is cheaper to use consultants than to hire an expert to permanently work at the firm
CHAPTER 10: GETTING FINANCING OR
FUNDING
THE IMPORTANCE OF GETTING FUNDING/FINANCING
 Not many people deal with the issue of raising capital until they have to raise capital
for their own firm
 Not having much knowledge about the process of raising finances can lead to the
entrepreneur placing to much reliance to certain forms of financing

WHY MOST NEW VENTURES NEED FUNDING

 There are three reasons that they need funding:
o Cash Flow Challenges – Inventory must be purchased, employees must be
trained and paid, and advertising must be paid for before the cash is generated
from the sales
o Capital Investment – Cost of buying real-estate, building facilities and
purchasing equipment usually exceeds the firm’s financial capabilities
o Lengthy Product Development Cycles – Some products are in development
for years before they start generating income for the firm, the upfront costs are
usually a lot

SOURCES OF PERSONAL FINANCING

 Personal Funds – Involves both financial resources and sweat equity. Sweat equity is
the time and effort that the individual has put into the business represented as a
monetary value
 Friends & Family – Often comes in the form of loans or investments, but can also be
outright gifts, foregone or delayed compensation, or reduced or free rent. It is wise to
set up a repayment schedule, to avoid personal conflict
 Bootstrapping – Finding ways to avoid external funding through creativity,
ingenuity, thriftiness, cost-cutting, obtaining grants or any other means

PREPARING TO RAISE DEBT OR EQUITY FINANCING

 A carefully planned approach to raise funds can increase the chance of success and
save time
 Step 1: Determine precisely how much money the firm needs
o Constructing a document cash-flow statements and projections for needed
capital expenditures shows how much money the firm needs
 o A company wants to know how much money it need for two reasons: You
don’t want to get caught with too little money, and you don’t want to pay for
capital you are not using; it also gives a poor impression of the entrepreneurs
if they do not know how much money they need to further fund their venture
 Step 2: Determine the appropriate form of financing
o The two most common forms of external financing are equity financing and
debt financing
o Equity financing – Exchanging a percentage of the company (shares in the
company) (think dragon’s den) for a cash injection from an investor(s). This
can be done by venture capitalists, angel investors and initial public offerings
(reaching out to the public). Money is not paid back.
o Debt financing – Is essentially getting a loan, the most common places to get
debt financing is from commercial banks. This money needs to be repaid with
interest to the bank. Loans need to be secured with assets from the firm or the
owner (if partnership, incorporation, or sole proprietorship). But most start-ups
do not have the characteristics that the bankers want, risk is too high for the
bank.
 Developing a strategy for engaging potential investors or bankers
o There are three steps to developing a strategy for engaging with potential
investors or banker:
 The lead entrepreneurs should give an elevator pitch (short explanation
of the business and its merits) the pitch should last about 45 seconds
 The second step is more deliberate, it requires identifying the best
prospects. Ask for an introduction if there is a connection with the
banker/investor
 Be prepared to given the person a full business plan and be prepared to
make a presentation if asked to do so

SOURCES OF EQUITY FUNDING

 Biggest disadvantage is that the owner relinquishes part ownership interest in the
business and thus may loose some control over their business. It may happen that they
lose control over the business they started
 Business Angels – Investors who directly invest their personal funds into start-ups
(rich new Yorkers invested in Broadway plays, this is where the term comes from).
They usually invest in start-ups in the area where they live. They are fine with making
relatively small investments in the firm, thus not taking that much equity from the
founders.
  Venture Capital – Venture capital are investments made by venture capital firms into
small businesses and start-ups with exceptional growth potential. Venture capital
firms are limited partners of money-managers who raise the money to invest I start-
ups. The money comes from high-net worth individuals, pension plans, university
endowments, foreign investors and similar sources. Investors who invest in the
venture capital funds are limited partners and the people that manage the fund are
called general partners. Firms that qualify receive their money in stages: they make
the initial investment, the following are made in rounds (referred to as follow-on
funding)
 Initial Public Offering – This is selling stock on the stock exchange (only possible
for public companies).
o Step 1: Hire an investment bank to help listing the company, they issue
securities and walk the firm through the process of listing the company
o Step 2: Prep a preliminary prospectus that describes the offering to the general
public. After the relevant authorities have approved the offering, the
investment bank issues the final prospectus, the company also goes on a
roadshow

SOURCE OF DEBT FINANCING

 Involves getting a loan or issuing debentures (public loans money to the company,
with the guaranteed payment with interest)
 Two types of loan:
o Single-purpose loan – Money that is borrowed that must be repaid in a
specific time, with interest
o Line of credit/Overdraft – A borrowing cap is established and the firm can
use the credit to make purchases at the own discretion, requires periodical
interest payments
 Advantages of a loan
o The owners retain control over the business
o Interest and loan payments are tax-deductible
 Disadvantages:
o The loan must be repaid, may be difficult in a start-up as cash-flow may tight
o The lenders require ample securities for the loan (assets put up that the lender
may take incase the loan is not paid, the more secured the loan the less interest
they ask as there is less risk for the bank. The less secured = more interest
because there is more risk)
  Commercial Banks:
o Not seen as viable for start-ups, banks are risk averse.
o Banks are important for small business later in their lifecycle
 Other Sources of Debt Financing:
o There are online lenders that will lend money to new firms, but the are sketchy
and have very high interest rates
o There are peer-to-peer lenders that underwrite loans but they don’t fund
directly (they provide the security)
o Vendor-credit can also be used

CREATIVE SOURCES OF FINANCING AND FUNDING

 Crowdfunding –
o The process of raising money from members of the public, done online
(GoFundMe.com)
o Rewards-based funding is where the firm will give the person funding a
reward based on the amount of money they donate ($100 gets you a custom
badge)
o There is also equity-based crowdfunding, this basically works the same as
public offerings, but on a smaller scale (Crowdfunder.com)
 Leasing –
o A lease is a written agreement where the owner of the property gives the firm
permission to use the property for a specified period in exchange for periodic
payments, this is usually cheaper than buying the thing but it does not increase
the assets of the firm
o There are also venture-leasing firms that bring the parties together (they act as
a middleman)
o Many lease agreements require a downpayment
o Leasing is useful for firms in industries that move quickly (tech, etc.)
CHAPTER 11: UNIQUE MARKETING
ISSUES
SELECTING A MARKET AND ESTABLISHING A POSITION
 The firm needs to know who their customers are and how to reach them in order to
succeed
 The firm uses three steps to determine who their customers are:
o Segmenting the market
o Selecting a target market
o Crafting a unique positioning strategy

SEGMENTING THE MARKET

 The firm needs to study the industry in which they want to compete and determine the
different target market in that industry (the auto industry has many different target
markets, fast cars, big cars, and small cars, cheap cars, expensive cars)
 A new firm typically only has enough resources to target one market segment in the
beginning
 To test whether your market has been successfully segmented, consider the following
requirements;
o Homogeneity of the needs and wants of the market segment (does everyone
want the same thing)
o Heterogeneity of needs and wants between the segments
o The differences within the segment should be small compared to the
differences across the segments
o Should be able to determine the size of the segment

SELECTING A TARGET MARKET

 After the firm has selected a market segment, they need to decide on their target
market (an even narrower piece of the market)
 Start-ups don’t usually target an entire, as they don’t have the necessary resources yet
 The TM should align with their business model and the skills available in the firm
CRAFTING A UNIQUE MARKET POSITION
 The firm now needs to establish a market position (MP) that differentiates them from
the competitors
 It is helpful to create a product attribute map, it illustrates the firm’s positioning
strategy relative to its major rival
 To bolster the market position, the firm needs to create a tagline that is catchy

BRANDING
 A brand is a set of attributes the public associates with the firm (this can be positive or
negative), such as value for money, trustworthy
 The firm creates customer loyalty through the brand (some people base their
personality on a brand)
 Some companies have brand management teams that aim to improve and protect a
company’s image/brand
 The brand must mean something in the customers’ lives and also create value for them
(this is perceived value, like a Gucci shirt is not worth $100 but people pay that
because they think is has that value)
 when promoting the product refrain from listing the features and benefits of the
product, the public may perceive this as you trying to one up the competition. Instead
the firm should link the product to a human experience, why the firm was started and
why the product has been developed
 Brand equity is a set of assets and liabilities that are linked to the firm and this can
increase or decrease a company’s valuation

THE 4PS OF MARKETING FOR NEW VENTURES

 The marketing mix is a set of controllable, tactical marketing tools that it uses to
produce the response it wants in the target market
 The marketing mix is:
o Price –
 amount of money the customer will pay for the product
 the price the company chargers for the product sends a clear message
to their TM.
 Cost based pricing: Adding a markup percentage to the cost price of
the product (70% markup on R100 = price of R170)
 It is not easy to estimate what the costs will be, it is difficult to raise
the price once it is set
  Value based pricing: pricing is based on what the firm thinks the
customer is willing to pay, this is determined by the perceived value of
the product. The perceived value is determined by the branding,
positioning and the other elements in the marketing mix
o Product –
 the product being offered
 the product being sold determines the entire marketing mix
 the initial rollout is the most important times in the marketing mix
o Promotion –
 the actions a firm takes to communicate the merits of the product to
their target market
 Some common ways that firms use to promote their product is:
 Advertising – helps raise awareness about the product; Explain
the comparative features and benefits, but it can create clutter
and has low credibility
 Public Relations – Not paid for directly, done willingly, can be
good or bad
 Social media – Using apps like Instagram, Facebook and
Twitter; makes posts about the product, can help connect the
product with a certain lifestyle
o Place –
 Encompasses all the activities that moves a firm’s product from its
point of origin to the consumer
 The firm must choose if they are going to sell their product directly to
the customers or if they are going to use intermediaries
 If they are selling direct it make it easier for the firm to control the
process of moving product to the customer, it also makes it easier to
maintain quality as the firm knows everything that is happening to
their product along the way
SALES PROCESS AND RELATED ISSUES
 The sales process is the steps they decide to take to identify prospects and close sales
 Using a proper process benefits the firm in two ways:
o Enables the firm to fine-tune the sales approach and build uniformity
o It can help the firm qualify leads, so they can use their time and money to
pursue the best leads

Step 1:
Step 2: Make Step 3: Qualify
Prospect for
initial contact the lead
sales

Step 4: Make Step 5: Meet

Step 6: Close
the sales objectioins and
the sale
presentation concerns

Step 7: Follow
up
CHAPTER 12: THE IMPORTANCE OF
INTELLECTUAL PROPERTY
THE IMPORTANCE OF INTELLECTUAL PROPERTY
 Intellectual property is any product of human intellect that is intangible, but has value
ono the marketplace
 Called intellectual property because it is the product of human imagination, creativity
and inventiveness
 The loss of intellectual property can be just as damaging, if not more, for a company
than the loss of any physical assets

Not identifying
all their
intellectual
property

Common
Not using their Not fully
Intellectual
intellectual recognizing the
Property
property as part value of the
Mistakes
of their overall intellectual
Entrepreneurial
plan for success property
Fims Make

Not legally
protecting all the
intellectual
property that
needs to be
protected
DETERMINING WHAT INTELLECTUAL PROPERTY TO LEGALLY
PROTECT
 There are two primary rules of thumb:
o The firm must determine if the intellectual property is directly linked to their
competitive advantage
o The firm must determine if the intellectual property has value on the market

THE FOUR KEY FORMS OF INTELLECTUAL PROPERTY

 Patents
 Trademarks
 Copyrights
 Trade Secrets

PATENTS
 A patent is a grant from the government conferring the rights to exclude others from
making, selling, or using an invention for the term of the patent
 The owner of the patent is granted a legal monopoly for a limited time
 The patent does not immediately allow the owner to make, sell, or us an invention for
a the time, they are only allowed to do so if their product does not infringe upon any
other patents (patenting a car, but the wheel is already patented by someone else, may
only make and sell the car if the patent for the wheel expires, but no one else may
make a car)

TYPES OF PATENTS
 The design or invention must be: useful (have a utility); Novel (Must be different
from what came before); Not obvious (must not be an obvious skill to a ordinary
person, you cant go and patent a toastie)
 There are three types of patents:
o Utility Patents –
 Most common type of patent
 May be granted to whoever invents or discovers any new and useful
process, machine, manufacturing process, or composition of matter, or
any new useful improvement thereof
 Lasts 20 years, then the invention falls into the public domain
 o Design Patents –
 Covers the invention of new, original, and ornamental designs or
manufactured products
 They last 14 years
 Protects the way a product looks (like car designs)
o Plant Patents –
 Protect new varieties of plants that reproduce asexually
 Very rare patent

WHO CAN APPLY FOR THE PATENT?

 Only the inventor of the product/design/plant may apply for the patent
 If more than one person invented the product, they must apply for the patent together
 If the invention is made during the course of an employee’s employment the employer
is assigned the right to apply for the patent through an assignment of invention
agreement signed by the employee as part of the employment agreement
 The rights to apply for the patent may be sold

PROCESS OF OBTAINING A PATENT

 Costs include attorney fees, fees for drawings and filing and maintenance fees
 Step 1: Make sure the invention is practical
o Decide if the intellectual property is worth protecting (does it have market
value? Is it an important part of the business’ success?)
 Step 2: Determine what type of patent application to file
o Choose what patent type is most applicable
 Step 3: Hire a patent lawyer
o It is highly recommended that the inventor works with a patent lawyer
o The best chance for a successful application is if it properly worded
 Step 4: Conduct a patent search
o The invention must be novel to be patentable and different enough to anything
that already exists
o The lawyer will render an opinion after hours of research
  Step 5: File a patent application
o Applications can be filed online or by post
o In a first-to-file system, the right to possible approval lies with whoever
applies for the patent first
 Step 6: Obtain a decision from the OAPI
o If the patent application is received it gets a serial number, assigned to a
examiner and then awaits to be examined
o The examiner examines the application and writes a report to the attorney,
they may ask for modifications
o A yes or no decision is made
o Rejected patents can be appealed, but they are rare and expensive

PATENT INFRINGEMENT
 This is when one party engages in unauthorized use of the patented item
 They are costly to litigate, which puts start-ups and small businesses at a disadvantage
 They cost at least $500k to litigate

TRADEMARKS
 A trademark is any: word, name, symbol or device used to identify the source or
origin of products or services and to distinguish those services or products from others

THE FOUR TYPES OF TRADEMARKS

Type of Trademark Type of Mark Covered Duration
Trademark Any word, name, symbol, or Renewable every 10 years
device used to distinguish and
identify one company’s goods
from another’s
Service Mark Used to identify the services of Renewable every 10 years
intangible activities of a business
Collective Mark Trademarks of service marks used Renewable every 10 years
by the members of a cooperative,
association, or other collective
Certification Mark Marks, words, name, symbols, or Renewable every 10 years
devices used by a person other
than the owner to certify a
particular quality about a good or
service
WHAT IS PROTECTED UNDER TRADEMARK LAW
 Words
o All combinations or words are eligible for trademark registration including,
short phrased, single words and slogans
 Numbers and Letters
o Number and letters are eligible for registration, so are alphanumerical marks
 Designs or Logos
o A mark consisting solely of a design
o The mark must be distinctive rather than generic
 Sounds
o Distinctive sounds can be trademarked (MGM’s lion roar), but it is a rare form
of trademark
 Fragrances
o The product’s fragrance may be trademarked as long as it does not enhance the
use of the product

EXCLUSIONS FROM TRADEMARK PROTECTION

 The following may not be trademarked:
o Immoral or scandalous matter – A company cannot trademark any
scandalous/immoral matter, like profanities
o Deceptive matter – If the trademark is deceptive (fresh Florida oranges)
o Descriptive marks – Marks that are merely describing an object (like golf
ball)
o Surnames – You cannot trademark a surname on its own

PROCESS OF OBTAINING A TRADEMARK

 
The chosen TM should
Step 1: Select display creativity and
strengh
appropriate Words that create a
favorable impressions
mark about the firm or product
is helpful

Step 2: Perform Trademark search should

trademark be condicted to see if the
TM is available
search

Step 3: Create The trademark must be

used within 6 months of
rights in the the registration,
otherwise the owner
trademark loses his right & benefits

TRADEMARK INFRINGEMENT
 It is the unauthorized use of a trademark or service mark in a manner that can cause
confusion
 If someone has trademarked “Billy Goat ****” a company that also uses Billy Goat
could cause confusion, the owner of the company that registered first can send a
cease-and-desist order to the other company, to ask them to stop using the trademark
 It hinges on if the usage causes confusion, if two business has a similar name but are
in two different industries, it won’t cause confusion
 If someone uses a name that is confusingly similar, like Adidas and Adibas

COPYRIGHTS
 A copyright is a form of intellectual property protection that grants the owner of a
work of authorship the legal right to determine how the work is used and to obtain the
economic benefits from the work
 The work does not have to have artistic merits to be copyrighted (like textbooks)
WHAT IS PROTECTED BY A COPYRIGHT
 Literary works
o Books, poems, speeches, games, etc.
o Characters in books, games and shows
 Musical compositions
o A musical composition, including any accompanying words, that is in a fixed
form is protectable
o Derivative works (covers and remixes) that are derived from copyrighted
works are also copyrightable, but they need the consent of the copyright owner
 Computer software
o All forms of computer programs
 Dramatic works
o A theatrical performance (movie, tv show, newscast and plays)
o An entire work can be protected by a single copyright
 Pantomimes and choreographic works
o Pantomimes (mimes’ shows) or arrangements of dance moves can be protected

EXCLUSIONS FROM COPYRIGHT PROTECTION

 Copyright cannot protect ideas
 The legal principle is called idea-expression dichotomy

HOW TO OBTAIN A COPYRIGHT

 The following steps can be taken to enhance the protection offered by copyright
statutes:
o By attaching a copyright notice the author can prevent someone from using the
work without permission and claiming that they didn’t know the work was
copyrighted
o The second way is registering with the relevant copyright office
 The copyright lasts for the life of the author plus 70 years
 For works for hire it is 95-120 years from the date op publication
COPYRIGHT INFRINGEMENT
 Copyright infringement happens when one work is derived from another
 To prove infringement, the owner is required to show that the infringer had prior
access to the copyrighted work and that the subsequent work is substantially similar

TRADE SECRETS
 Most companies have information that is vital to their success, but that cannot be
protected
 A trade secret is any formula, pattern, physical device, idea, process, or other
information that provides the owner of the information with a competitive advantage

WHAT QUALIFIES FOR TRADE SECRET PROTECTION?

 In general, any information that is not known to the public or that the competitors can
learn through legal means
 If a secret is accidently spilled is loses the trade secret status
 Firms can keep the trade secret protection if they take reasonable steps to keep the
info confidential
 Criteria for trade secret:
o Is it known outside the company?
o It is known on a need-to-know basis
o Is safeguarded by stringent efforts to keep the info confidential
o Is valuable to the company and provides them with a competitive advantage
o Was developed at a great cost
o Cannot be easily duplicated, reverse engineered or discovered

TRADE SECRET DISPUTES

 They arise most commonly when an employee leaves the company and joins a
competing firm
 The key to winning a trade secret dispute is that some sort of theft or misappropriation
has taken place
 A company affected by trade secret theft can institute a civil claim for damages
 The defendant can say:
o The info was obtained by proper legal means
o The info is common knowledge
 o Or was innocently received

TRADE SECRET PROTECTION METHODS

 Physical Measures:
o Restricting physical access to the information for non-key personnel
o Labeling documents as confidential and securing them when they are not
being used
o Password protecting the confidential files, if they are soft copies, on company
computers
o Maintaining a logbook for the visitors within the firm and make sure they are
always accompanied by an employee
o Maintain logbook for people accessing the sensitive information
o Maintaining an adequate overall security measure
 Written agreement
o It is important for the employees to know it is their job to keep the trade
secrets save
o The best protection is to ask them to sign a non-disclosure agreement when
joining the company, this is best form of legal protection and the easiest to
litigate as it crosses over into contract law
o They can also make the employee sign a non-compete clause, that prevents
them from working in the same industry for a certain period of time

WHY CONDUCTING AN INTELLECTUAL PROPERTY

AUDIT?
 Two main reasons:
o Prudent for a company to periodically determine if its intellectual property is
being properly protected
o To prepare justifying the value of their trade secrets in the event of a merger,
many large companies purchase smaller firms mainly for their intellectual
property
CHAPTER 13: PREPARING FOR AND
EVALUATING THE CHALLENGE OF
GROWTH
PREPARING FOR GROWTH
 Most firms want to grow, the short-term growth determines the potential of the
venture to survive
 It is an indication of success for the firm

APPRECIATING THE NATURE OF BUSINESS GROWTH

 Growing a business successfully requires preparation, good management and an
appreciation of the issues involved
 The following issues should be appreciated:
o Not all businesses have the potential to be aggressive growth firms
 The businesses that grow fast are businesses that solve a major issue or
have a significant impact on customers’ productivity or lives
 Health-care, tech, social media, and entertainment are aggressive
growth firms
o A business can grow too fast
 This can leave firms financially strained and also leave the owners
emotionally drained
 They can have difficulty keeping up with demand if they have a
sudden upswing and leave them scrambling
o Business success doesn’t always scale
 The very thing that makes a firm successful can stunt their growth
 Businesses that provide specialized, personal services can make it
difficult to scale and grow

STAYING COMMITTED TO A CORE STRATEGY

 An important part of the business model is the core strategy, which shows how they
compete relative to their rivals
 If the firm becomes distracted or pursues every opportunity they are presented, it may
cause them to stray into areas they are not familiar with, and this may cause them to
be at a competitive disadvantage
PLANNING FOR GROWTH
 They can establish a growth plan; this involves the firm thinking ahead and
anticipating the type and amount of growth it wants to achieve
 It is also important for the firm to determine as, early as possible, what strategies it
will employ as a means of pursuing growth

REASONS FOR GROWTH

 Sustained and profitable growth is always the result of careful planning and
intentional, yet the firm cannot choose their pace of growth
 Pace of growth is the rate at which the firm is growing on an annual basis

CAPTURING ECONOMIES OF SCALE

 Economies of scale are generated when the increasing production lowers the average
cost of each unit produced
 They can be created in service firms and manufacturing firms
 A company can get a discount by buying in bulk which lowers the variable costs
 By increasing production, the company can spread out the fixed costs over a larger
number of produced items

CAPTURING ECONOMIES OF SCOPE

 Economies of scope is similar to economies of scale
 The advantage comes with the range of their operations rather than productions
 The firm may be able to sell 10 items faster than 5 items as the cost is spread over a
larger number of products

MARKET LEADERSHIP
 This is when a firm holds number one or number two in the industry or their niche
market in terms of sales volume

INFLUENCE, POWER, AND SURVIVABILITY

 Larger businesses usually have more influence and power than smaller firms in regard
to setting standards in the industry
 A large firm can make a mistake and still survive
NEED TO ACCOMMODATE THE GROWTH OF KEY CUSTOMERS
 Sometime firms need to force growth in order to keep up with a major customer

ABILITY TO ATTRACT AND RETAIN TALENTED EMPLOYEES

 Firms grow to attract and keep high-quality employees at the firm
 If the firm grows it provides the employees chance to grow with the firm (promotions
and pay raise)

MANAGING GROWTH
KNOWING AND MANAGING THE STAGES OF GROWTH
 Introduction Stage
o Where the business determines their core capabilities and their strengths
o This a hands-on phase for the founders
o Main challenges are ensuring the initial product/service is right and to lay the
ground-work for building a larger organization
 Early Growth Stage
o Characterized by the increase in sales and heightened complexity
o Still focused on the initial product/service but is trying to increase their market
share and might have related product in the works
o The founder needs to start transitioning from a hands-on role to a managerial
role and spend more time learning how to grow and build the business
o The business must become more formal by developing policies and procedures
that tell employees how to run the firm when top level is not as involved
anymore
 Continuous Growth Stage
o Need for structures and more formal relationships increases
o The resource requirements for the business is usually the biggest concern,
along with the ability of the owner and management to take the business to the
next level
o Smaller firms may be acquired and the business may start expanding more
aggressively into areas that play to their strengths
  Maturity Stage
o The growth slows at this stage
o The firms focus mainly on efficiently managing the products and services it
has, as opposed to expanding into new areas
o The important thing is that the firm continues to adapt and evolve and that the
employees, founders, and managers stay passionate about the product or
service they deliver
o Firms in this stage looks for opportunities to partner with firms or to acquire
firms to breathe new life into the firm
 Decline Stage
o It is not inevitable that a business will enter the decline stage
o The key is that they adapt to the environmental changes and selling products
that remain important to the customers
o Eventually all products are threatened by new and innovative products that
enter the market
o It can also enter this stage if they lose sight of their purpose or if they spread
themselves too thin

DAY-TO-DAY CHALLENGES OF GROWING A FIRM

 Cash Flow Management
o The more customers they have to service the more they need (more costs
associated)
o Required sufficient liquidity to meet the payroll and cover their short-term
obligations
 Price Stability
o If the firm’s growth comes at the expense of a competitor’s market share, price
competition can set in
o This places a new firm in a predicament, as the large firm can afford to lower
their prices for longer than a new firm
 Quality Control
o It becomes more difficult for a firm to ensure their quality (products and
customer service) as the firm grows and expands
 Capital Constraints
o Although businesses are relatively cheap to start, the growth requires capital
investments
CHAPTER 14: STRATEGIES FOR FIRM
GROWTH
INTERNAL GROWTH STRATEGIES
 Actions taken within the firm for the purpose of increasing sales revenue and
profitability
 These strategies include:
o New product development
o Other product-related strategies
o International expansion
 The distinctive attribute of internally generated growth is that the firm uses their own
competencies, expertise, business practices, and employees

NEW PRODUCT DEVELOPMENT

 Involves designing, producing and selling new products as a means of increasing the
firm’s revenues and profits
 In most fast-paced industries the need for new developments is important
 It can result in substantial rewards, but it is a high-risk strategy
 The key is to not develop products just because everyone is
 The keys to effective product development:
o Find a need and fill it
o Develop products that add value to the customers’ lives
o Focus on a specific target market
o Conduct ongoing feasibility analysis
ADDITIONAL INTERNAL PRODUCT-GROWTH
STRATEGIES
IMPROVING AN EXISTING PRODUCT OR SERVICE
 The firm can increase their revenue by improving an existing product/service by
enhancing the quality, making it larger or smaller, making it more convenient to use,
improving its durability, or making it more up-to-date
 This increases the value and price potential in the eyes of the customers

INCREASING THE MARKET PENETRATION OF AN EXISTING PRODUCT

OR SERVICE
 This involves the actions taken to increase the sales of a product through greater
marketing efforts or through increased production capacity and efficiency
 Lowering prices, marketing more, or increasing the sales force, can increase the
market share

EXTENDING PRODUCT LINES

 This involves making additional versions a product to appeal to a different clientele
(Coke making diet coke for health-conscious people; or to appeal to different income
levels)
 Firms also extend product lines to leverage their core competencies into related areas

GEOGRAPHICAL EXPANSION
 Many businesses grow by expanding to new locations
 The keys to successful geo-expansion:
o Perform successfully at the initial location
o Establish legitimacy of the business concept in the expansion
o Don’t isolate the expansion location

INTERNATIONAL EXPANSION
 International new ventures are businesses that, from inception, seek to derive
competitive advantage by using their resources to sell products or services in multiple
countries
 It is a complex form of firm growth; the firm needs to clearly observe the buying
power fluctuation across the international stage
ASSESSING A FIRM’S SUITABILITY FOR GROWTH THROUGH
INTERNATIONAL MARKETS
Evaluating a firm’s overall suitability for growth through international markets:
 Depth of management commitment
o The firm can export with minimal risk to test the markets, other forms of
internationalization are riskier
o A properly executed international strategy requires top management support
 Depth of international experience
o Many firms do not have experience in international markets
o The firm may need to hire an export management company to familiarize
themselves with the export documentation and other processes
 Interference with other firm initiatives
o Learning how to sell in international markets can consume a lot of time
o The culture of the market they are selling in needs to be understood
 Product issues
o The product must be suitable for overseas markets, many questions need to be
answered
o A firm cannot assume that the product will work overseas
 Distribution issues
o How will the product be shipped to the foreign country?
o How will the customer pay? And how will the company recover ther=ri bad
debts in the foreign country?
FOREIGN MARKET ENTRY STRATEGY
Entry Strategy Advantage Disadvantage
Exporting – Inexpensive way of Hogh transportation costs can
Producing locally and becoming involved in foreign make it uneconomical for
shipping to foreign market markets bulky product
Licensing – Licensee puts up most of the The firm “teaches” another
Agreement where firm gives capital needed to establish firm how to produce the
the rights of a product to a the presence in the foreign products
foreign firm to produce the country
product there, usually get
royalties or other forms of
payment
Joint-ventures – Gaining access to the Loses partial control of its
Establishing a firm that is knowledge that the foreign business operations
jointly owned by two of more partner has
firms that are independent
from each other
Franchising – Franchisee puts up most of Quality control
Is an agreement between a the capital needed
franchisor and a franchisee,
where the franchisor give the
franchisee permission to use
the proprietary items for a fee
Turnkey Projects – Ability to generate revenue Usually, a one-time activity
A contractor from one
country builds a facility in
another country, trains the
staff and hand the key over
when the project is finished
Wholly Owned Subsidiary– Provides firm total control Costs of setting up and
The firm establishes a firm maintaining a manufacturing
that they own in another facility and a permanent
country to establish a presence
permanent presence
SELLING OVERSEAS
 How to sell products in an overseas market:
o Answer enquiries fast and promptly and clearly
o Answers from foreign enquiries, not fax or email, with fast overnight delivery
or airmail
o Retain all foreign enquiries
o Keep promises
o Be polite, courteous and friendly
o Send a person of equal level to the person that they are meeting

EXTERNAL GROWTH STRATEGIES

 Hinge on establishing relationships with third parties
 Results in a more fast-paced, collaborative approach toward growth
Advantages Disadvantages
Reducing competition Incompatibility of top management
Getting access to proprietary products or Clash of corporate cultures
services
Gaining access to new products and markets Operational problems
Obtaining new technical expertise Increased business complexity
Economies of scale Antitrust implications
Diversification of business risk Loss of organizational flexibility

MERGERS AND ACQUISITIONS

 The firm who initiates the acquisition is the acquirer and the firm they want to
acquire is called the target firm
 Finding an Appropriate Acquisition Candidate
o The target firm must be open to being acquired and their ability to receive
permission from key third-parties (investors, bankers and suppliers)
o Strength of the target firm’s management team, industry and their physical
proximity to the acquiring firm’s HQ
o The perceived complexity of the target firm’s management team and
corporate culture
o Target firm’s past and projected financial performance
  Steps involved in an acquisition:

Step 1: Schedule a meeting with

the target firm's execs

Step 2: Evaluate the feelings of the

target firm's executives about the
acquisition

Step 3: Determine the most

appropriate way to finance the
acquisition

Step 4: Actively negotiate with the

target firm

Step 5: Make an offer if

negotiations indicate that it is the
appropriate time to do so

Step 6: Develop a noncomplete

agreement with the key target
firm eployees who will be retained

Step 7: Hire an attorney to prep

the closing docs

Step 8: As soon as practical, meet

with the employees to explain the
acquisition

Step 9: Move forward with the

plan for adding the acquired firm
to the organization

LICENSING
 Granting another firm permission to use a specific form of its intellectual property
under clearly defined conditions
 Any form of protected intellectual property owned by a firm can be licensed to a 3rd
party
 Terms of a license is set out in a licensing agreement, formal contract between
licensor and licensee
 Can be exclusive or non-exclusive
 Two principal types of licensing:
o Technology Licensing
 Licensing of proprietary technology, usually patented tech
 o Merchandise and Character License
 The licensing of a recognized trademark that the licensor typically
controls through a registered trademark or copyright
 Marvel licenses their characters to merchandising companies for a
royalty fee

STRATEGIC ALLIANCES AND JOINT VENTURES

 Strategic alliance
o Partnership between two or more firms that is developed to achieve a specific
goal
o This can boost a firm’s rate of patenting
 Joint ventures
o An entity created when two or more firms pool a portion their resources to
create a separate, jointly owned organization
o Gaining access to a foreign market is the most common reason for a joint
venture
Advantages Disadvantages
Gain access to a particular resource Loss of proprietary information
Economies of scale Management complexities
Risk and cost sharing Financial and organizational risk
Gaining access to a foreign market Risk of becoming dependent on partner
Learning Partial loss of authority
Speed to market Partners’ cultures may clash
Neutralizing or blocking competitors Loss of organizational flexibility


CHAPTER 15: FRANCHISING
WHAT IS FRANCHISING?
 It is a form of business organization where a firm that already has a successful product
or service (franchisor) licenses its trademark and method of doing business to other
businesses (franchisees) in exchange for an initial franchising fee and ongoing
royalties

HOW DOES FRANCHISING WORK?

 It is a form of growth that allows a business to get its products or services to market
through efforts of business partners
 Two types of franchises:
o Product and trademark franchise:
 Arrangement under which a franchisor grants to the franchisee the
right to buy its products and use its tradename
o Business format franchise:
 Most popular and common form
 Franchisor gives a formula for doing business to the franchisee along
with training, advertising, and other forms of assistance
 Types of business format franchises:
o Individual franchise agreement – Sale of a single franchise in a specific
location
o Area franchise agreement – Allows the franchisee to own and operate a
number of franchises in a specific geographic location
o Master franchise agreement – Same as area franchise agreement, but they
may also offer and sell the franchise to others in the geographic location (these
are called sub-franchisees),
ESTABLISHING A FRANCHISE SYSTEM
 Establishing a franchise should be approached carefully and deliberately
 Franchising is popular in retail and service industry

WHEN TO FRANCHISE
 Retail and brick & mortar firm grow when two things happen:
o The attractiveness raises and the products/services become well known
o When the firm has the financial capability to build the outlets needed to satisfy
the demand
o Franchising is attractive to young firms as the majority of the money gets put
up by the franchisee

STEPS TO FRANCHISING
 Develop a franchise business plan
o Should follow the format of a conventional business plan and should describe
the rationale for franchising and act as a blueprint for rolling out the franchise
 Get professional advice
o The potential franchisor should seek advice from a franchise attorney, certified
public accountant, or consultant
o If the franchise does not have the potential, the expert can save them a lot of
time
 Conduct an intellectual property audit
o This step is to ensure the company knows what intellectual property they own
and if it is properly registered and protected
 Develop the franchise documents
o This is the beginning of the franchise evaluation process
 Prepare operating manuals
o Businesses that are suited for franchises are usually easy to teach to the
franchisees
o They franchisor should have document prepped to instruct the franchisees
 Plan an advertising strategy and a franchisee training program
o The prospective franchisee would want to see this
  Put together a team for opening new franchise units
o The team should be well trained and equipped to provide the franchisee a
broad range of training and guidance
 Plan a strategy for soliciting prospective franchisees
o News ads, franchise trade fairs, roadshows and social media platforms
 Help franchisees with site selection and the grand opening of their franchise
outlets
o Location is very important to most retail businesses, so the franchisor should
be heavily involved in the selection process of the outlets

SELECTING AND DEVELOPING EFFECTIVE FRANCHISEES

 Qualities to look for:
o Good work ethic
o Ability to follow instructions
o Team oriented
o Ability to rep the franchisor in a positive manner
o Adequate financial resources and a good credit history
 Ways franchisors can develop they franchisees’ potential:
o Provide mentoring that supersedes routine training
o Keep operating manuals up-to-date
o Maintain the franchise system’s integrity
o Get input from franchisees to make them feel important
ADVANTAGES & DISADVANTAGES OF ESTABLISHING A
FRANCHISE SYSTEM
Advantages Disadvantages
Rapid, low-cost market expansion – Profit sharing –
Franchisees provide most of the capital to Franchisors share in the profit that their
start the business products make
Income from franchising fees and Loss of control –
royalties– It is difficult for a franchisor to control their
The franchisor gets a fairly quick return on franchisees; they still view themselves as
investments into their proprietary items independent business people
Franchisee motivation – Friction with franchisees –
The franchisees are highly motivated as they Friction can develop between franchisors and
put up their own capital franchisees if they do agree about certain
issues
Access to ideas and suggestions – Managing growth –
Franchisees represent a source of intellectual Franchisor that are in quickly growing
capital and often make suggestions to their industries and have a strong trademark often
franchisors grow quickly. If the franchise grows quickly,
the franchisor may not be able to tend to all
their franchisees


STEPS IN PURCHASING A FRANCHISE
Step 3: Meet with
Step 1: Visit sevral of
Step 2: Meet with a the franchisor and
the franchisor's
franchise attorney check their
outlets
references

Step 4: Revies all

Step 6: Attend Step 5: Sign the
franchise documents
training franchise agreement
with the attorney

Step 7: Open the

franchise