creating and starting the venture em ch 3

7/31/2019 Creating and Starting the Venture EM Ch 3

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Creating and Starting the

Venture

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Creativity and the Business Idea

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SOURCES OF NEW IDEAS

consumers, existing products and services,

distribution channels, the federal

government, and research and

development.

1. Consumers

attention to potential customers.

informally monitoring potential ideas

opportunity to express their opinions.

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SOURCES OF NEW IDEAS

2. Existing Products and Services method for monitoring and evaluating competitive products and

services on the market.

a new product or service that has more market appeal.

3. Distribution Channels their familiarity with the needs of the market.

suggestions for completely new products,

4. Federal Government the files of the Patent Office contain numerous new product

possibilities.,

available for license or sale..5. Research and Development

The largest source of new ideas is his own research anddevelopment, .

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METHODS OF GENERATING IDEAS

Focus groups, brainstorming, and problem inventory analysis.

1. Focus Groups

Group of people providing idea in a structured manner.

A moderator leads a group of people through an open, in-depth

discussion rather than simply asking questions to solicit participantresponse.

group of 8 to14 participants motivated by comments from othergroup members

Creatively conceptualizing and developing a new product idea tofulfill a market need..

excellent method for initially screening ideas and concepts.

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2. Brain Storming A group method for obtaining new ideas and solutions

stimulated to greater creativity by meeting with others andparticipating in organized group experiences..

focuses on a specific product or market area.

should be fun, with no one dominating or inhibiting the discussionfour rules should be followed:

I. No criticism is allowed by anyone in the groupno negative comments.

2. Freewheeling is encouragedthe wilder the idea, the better.

3. Quantity of ideas is desiredthe greater the number of ideas, the

greater the likelihood of the emergence of useful ideas.4. Combinations and improvements of ideas are encouraged; ideas ofothers can be used to produce still another new idea.

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3. problem Inventory analysis

A method for obtaining new ideas and solutionsby focusing on problems

uses individuals in a manner that is analogous tofocus groups to generate new product ideas.

instead of generating new ideas themselves,consumers are provided with a list of problems

in a general product category. used to test a new product idea.

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problem Inventory analysis

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CREATIVE PROBLEM SOLVING

Brainstorming

Reverse brainstorming

Brainwriting

Gordon method

Checklist method

Forced relationships

Collective notebook method

Attribute listing method

Big-dream approach

Parameter analysis.

Free association

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1. Brainstorming

used for both creative problem solving and idea

generation.

solving, generating ideas about a problem within

a limited timeframe, the spontaneous

contributions of participants.

All ideas, no matter how illogical, recorded, withparticipants prohibited from criticizing or

evaluating during the brainstorming session.

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2. Reverse brainstorming

A group method for obtaining new ideas

focusing on the negative

criticism is allowed.

the technique is based on finding fault

involves the identification of everything wrong

with an idea, followed by a discussion of ways toovercome these problems.

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3. Brainwriting

a form ofwritten brainstorming.

Bernd Rohrbach.

is silent, written generation of ideas by a group

of people.

participants write ideas on special forms or

card,circulate within the group, usually consists of six members.

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4. Gordon Method

Method or developing new ideas when the individuals

are unaware of the problem

group members not knowing the exact nature of theproblem.

the solution is not clouded by fixed ideas and behavioral

patterns.

The actual problem is then discovered, enabling thegroup to make suggestions for execution or modification

of the final solution.

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5. Checklist Method

Developing a new idea through a list of relatedissues or suggestions

use the list of questions or statements to guidethe direction of developing new ideas orconcentrating on specific idea areas.

Put to other uses? New ways to use as is? Other

uses if modified? Adapt? copy? Modify? Magnify? Stronger?

Larger? Thicker?

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6. Free Association

Developing a new idea through a chain of word

associations

helpful in developing an entirely new slant to a problem. a word or phrase related to the problem is written down,

another and another, with each new word attempting to

add something new to the ongoing thought processes,

thereby creating a chain of ideas ending with a new

product idea emerging.

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7. Forced Relationships

Developing a new idea by looking at product combinations

Process of forcing relationships among some productcombinations.

a technique that asks questions about objects or ideas in aneffort to develop a new idea.

1. Isolate the elements of the problem.

2. Find the relationships between these elements.

3. Record the relationships in an orderly form.4. Analyze the resulting relationships to find ideas or patterns.

5. Develop new ideas from these patterns.

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CREATIVE PROBLEM SOLVING8. Collective Notebook Method

a new idea by group members regularly recording ideas a small notebook that easily fits in a pocketcontain a statement of the

problem,.

9. Attribute Listing Developing new idea by looking at the positives and negatives

an idea-finding technique that requires to list the attributes of an item orproblem and then look at each from a variety of view points.

10.Big-Dream Approach Developing a new idea by thinking without constraints

come up with a new idea requires that the entrepreneur dream about the

problem and its solution, thinking big.

11.Parameter Analysis Developing a new idea by focusing on parameter identification and creative

combination

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OPPORTUNITY RECOGNITION

PROCESS

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PRODUCT PLANNING AND DEVELOPMENT

PROCESS

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Establishing Evaluation Criteria At each stage of PPDP criteria for evaluation need to be established.

evaluate the new idea in terms ofmarket opportunity, competition, the marketing system,financial factors, and production factors.

A market opportunity in the form of a new or current need for the product idea must exist.

The determination of market demand is by far the most important criterion of a proposed newproduct idea.

the characteristics and attitudes of consumers or industries that may buy the product, the sizeof potential market, the nature of the market with respect to its stage in the life cycle (growing

or declining), and the share of the market the product could reasonably capture. competing producers. prices, and marketing policies

should meet or overcome current and anticipated competition.

The new product should have synergy with existing management capabilities and marketingstrategies.

The manufacturing cost per unit, the marketing expense, and the amount of capital to bedetermined to break-even point and the long-term profit outlook for the product.

The compatibility requirements with existing plant, machinery, and personnel should also beevaluated.

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PROCESS

Idea Stage

new product ideas be identified and impractical

ones eliminated.

determine potential needs of the market in terms

of timing, satisfaction, alternatives, benefits and

risks, future expectations. price-versus-product

performance features, market structure and size,

and economic conditions.

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PROCESS

Concept Stage

the refined product idea is tested to determine

consumer acceptance.

it should be further developed and refined

through interaction with consumers.

Features, price, and promotion should be

evaluated

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PROCESS

Product Development Stage

consumer reaction to the physical product is

determined.

Test Marketing Stage

provides actual sales results, which indicate the

acceptance level of consumers.

Positive test results indicate the degree ofprobability of a successful product launch and

company formation.

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E-COMMERCE AND BUSINESS START-UP

the opportunity to be very creative and innovative.

widespread use of personal computers, the adoptionof internets in companies, and the acceptance of theInternet as a business communications platform.

Numerous benefitssuch as access to a broadercustomer base, lower information disseminationcosts, lower transaction costs, and the interactive

nature,

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Legal issues for the entrepreneur

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INTELLECTUAL PROPERTY

includes patents, trademarks, copyrights, and tradesecrets.

NEED FOR A LAWYER business is regulated by law,

the legal expertise required based on the new venture is a franchise,

an independent start-up,

or a buyout,

produces a consumer versus an industrial product; it is nonprofit

aspect of computer software, exporting, or importing.

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LEGAL ISSUES IN SETTING UP THE ORGANIZATION

issues as liability,

taxes,

continuity, transferability of interest,

costs of setting up,

attractiveness for raising capital.

Legal advice for agreements

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PATENTS

A patent is a contract between the government

and an inventor.

the government grants the inventor uniqueness

regarding the invention for a specified amount oftime.

At the end of this time, the government publishes

the invention and it becomes part of the publicdomain.

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The Patent Application

patent application must contain a complete history and description of theinvention as well as claims for its usefulness.

Introduction. background and advantages of the invention

the nature of problems that it overcomes. state how the invention differs from existing offerings.

Description of invention. a brief description of the drawings that accompany it.

drawings must comply with PTO requirements.

detailed description of the invention, which may include engineering

specifications, materials, components, vital to the actual making of theinvention.

Claims. criteria by which any infringements will be determined.

to prevent others from getting around the patent.

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Patent Infringement

entrepreneur to be sensitive about whether he or she isinfringing on someone elses patent.

someone else already has a patent does not mean the end of

any illusions of starting a business. Many businesses, inventions, or innovations are the result of

improvements, or modifications of, existing products.

If it is impossible to copy and improve the product to avoid

patent infringement, the entrepreneur may try to license theproduct from the patent holder.

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Seek a patent attorney having expertise in yourproduct line

design patent protect, the product design or productlook

Before making an external disclosure seek legalcounsel

Evaluate competitor insight into what they may be

developing. Be sure to mark product granted a patent.

Consider licensing patents.

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TRADEMARKS

may be a word, symbol, design, or some

combination,a slogan or even a particular

sound that identifies the source or

sponsorship of certain goods or services.

can last indefinitely, as long as the mark

continues to perform its indicated function.

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coined marks denote no relationship between

the mark and the goods or services e.g..

Mercedes. Kodak) and afford the possibility of

expansion to a wide range of products

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an arbitrary mark is one that has another meaning in language (e.g.,Apple) and is applied to a product or service.

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a suggestive mark is used to suggest certain features, qualities,ingredients, or characteristics of a product or service

suggest some describable attribute of the product or services.

a descriptive mark must have become distinctive over a significant periodof time and gained consumer recognition before it can be registered. Themark then is considered to have secondary meaning; that is, it isdescriptive of a particular product or service (e.g., Ruberoid as applied toroofing materials that contain rubber).

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Registering a trademark

Exclusive rights to the use of the mark

sue in federal court for trademark infringement

(profits, damages and costs).

Incontestable rights for commercial use of the mark.

prevent importation of goods with a similar mark.

entitles you to use the notice of registration

Provides for filing application in foreign countries.

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COPYRIGHTS

A copyright protects original works ofauthorship.

the tremendous growth of the use of the

Internet, especially to download music,literary work, pictures, and videos

computer software, books, scripts, articles,poems, songs, sculptures, models, maps,blueprints, collages, printed material on boardgames, data, and music.

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TRADE SECRETS

maintain an idea or process as confidential

and to sell or license it as a trade secret.

will have a life as long as the idea or process

remains a secret.

not covered by any federal law

recognized under a governing body of

common laws in each state.

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LICENSING

an arrangement between two parties, where one partyproprietary rights over some information, process or

technology protected by patent, trademark, or copyright.

requires the licensee to pay a royalty or some other specifiedsum for permission to copy the patent, trademark, orcopyright.

involves a franchising agreement.

agrees to pay a fixed sum for use of the trademark, pay aroyalty based on sales volume, buy supplies from thefranchisor

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PRODUCT SAFETY AND LIABILITY

Responsibility of a company to meet any legal

specifications regarding a new product by the

Consumer Product Safety Act

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Insurance

Property Fire insurance explosion, riot, vehicle damage, windstorm hail, and

smoke

Burglary and robbery Business interruption

Casualty bodily injury or property damage Automobile liability

Life Life insurance

Workers compensation work-related injury

Bonding in case of employee theft of funds or

protects contractor if subcontractor fails to complete a job

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CONTRACTS

Consideration.

competent and/or have the right to negotiate

Contract legal

Voluntary acceptance of offer.

oral or written

voluntary acceptance of offer is given.

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THE BUSINESS PLAN

CREATING

AND STARTING THE VENTURE

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WHAT IS THE BUSINESS PLAN

a written document prepared by the

entrepreneur that describes all the relevant

external and internal elements involved in

starting a new venture.

an integration of functional plans such as

marketing, finance, manufacturing, human

resources.

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SCOPE AND VALUE OF THE BUSINESS PLAN

The business plan may be read by employees, investors,bankers, venture capitalists, suppliers, customers, advisors,and consultants.

three perspectives considered in preparing the plan.

1. perspective of the entrepreneur articulate what the venture is all about.

2. the marketing perspective.

must try to view their business through the eyes of their customer.

3. the entrepreneur should try to view his or her businessthrough the eyes of the investor.

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EVALUATE THE BUSINESS PLAN?

suppliers,

Customers

suppliers of capital lenders or investors

banks

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PRESENTING THE PLAN

The entrepreneurs are expected to sell their business concept in this short time periodwith the audience given the opportunity to ask difficult and penetrating questions.

the benefit is that they are presenting in one place, to a number of firms or individualswho could immediately decide they like the plan and request further negotiation, leadingto a final investment decision.

Some investors describe these plans as the elevator plan. Its analogous to a situationwhere an entrepreneur would get on an elevator with one or more investors and try to

persuade them that he or she is a good investment before the elevator reaches its finaldestination.

It is also likely that a venture capitalist or angel group would ask the entrepreneur topresent to their partners before making a final decision on whether to invest. In all theseinstances the entrepreneur must decide what to say in this short time frame.

focus is on why this is a good opportunity, an overview of the marketing program(addresses how the opportunity will convert to reality), and the results of this effort (sales

and profits). remarks might reflect the recognized risks and how the entrepreneur plans to address

them. Remember,

effort is really designed to sell the investors on why this would be a good investment forthem.

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INFORMATION NEEDS

FOR BUSINESS PLAN

information, obtainable from many sources,

should focus on marketing, finance, and

production.

goals and objectives also provide a framework

for the business plan, marketing plan, aid

financial plan.

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Market Information

to build a strong marketing plan with

reasonable and measurable market goals and

objectives the entrepreneur will need to

gather information on the industry andmarket.

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the process by evaluating general

environmental trends.

include household income trends,

population shifts, food consumption habits

and trends, travel, employment trends.

assessment of trends in the national food

service industry look for data on total food

sales and commercial restaurant sales by

type of restaurant.

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Operations Information Needs

Location.The companys location, accessibility to customers, suppliers, anddistributors need to be determined.

Manufacturing operations.Basic machine, assembly operations, subcontracted and by whom.

Raw materials.

raw materials, suppliers names, addresses, and costs Equipment.

The equipment, cost, purchased or leased. Labor skills.

unique skill needed, the number of personnel in each skill, pay rate,anassessment of where and how these skills will be obtained should be

determined. Space.The total amount of space needed space will be owned or leased.

Overhead.support manufacturing-such as tools, supplies, utilities, and salaries

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FINANCIAL INFORMATION NEEDS

prepare a budget ,all possible expenditures , a list ofall revenue sources including sales and any externalavailable funds.

capital expenditures, direct operating expenses, andcash expenditures for non expense items. Therevenues from sales must be forecast from marketdata

identify benchmarks in the industry to prepare thefinal pro forma statements in the financial plan.


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USING THE INTERNET AS A RESOURCE TOOL

access information, business activities efficiently, expediently, and at very little cost.

business intelligence resource, provides opportunities for marketing strategy whichthrough its website, information on the company, its products and services, and itsordering instructions.

information about the market, competition, and customers as well as to distribute,advertise, and sell company products and services.

Compared with alternative sources the entrepreneur need only make a small investmentin hardware and software to be ready to use these online services.

With the continuous improvements and modifications in the Internet, the opportunitiesfor the entrepreneur in planning the start-up or the growth of a venture will beinvaluable.


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WRITING THE BUSINESS PLAN

could take hundreds of hours to prepare

depending on the experience

knowledge

purpose it is intended to serve.

comprehensive enough

a complete picture

understanding of the new venture clarify his or her thinking about the business.


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BUSINESS PLAN1. Introductory Page

Name and address of business

Name(s) and address(es) of principal(s)Nature of business

Statement of financing needed

Statement of confidentiality of report

2. Executive SummaryThree to four pages summarizing the complete business plan

3.. Industry AnalysisFuture outlook and trends

Analysis of competitors

Market segmentation

Industry and market forecasts

4.Description of VentureProduct's

Service's

Size of business

Office equipment and personnel

Background of entrepreneurs5.Production Plan

Manufacturing process ( subcontracted)

Physical plant

Machinery and equipment

Names of suppliers of raw materials


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BUSINESS PLAN6. Operational Plan

Description of company's operationflow of orders for goods and/or services

Technology utilization

7. Marketing PlanPricing

Distribution

Promotion

Product forecastsControls

8 Organizational PlanForm of ownership

Identification of partners or principalshareholders

Authority of principals

Management-team background

Roles and responsibilities of members oforganization

9. Assessment of RiskEvaluate weakness of business

New technologies

Contingency plans

10. Contingency plansFinancial Plan

Pro forma income statement

Cash flow projections

Pro forma balance sheet

Break-even analysis

Sources and applications of funds

11.Appendix (contains backup material)Letters

Market research data

Leases or contracts

Price Lists from suppliers


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Measuring Plan Progress

Inventory control. . The faster the firm gets back its investment in raw materials and finished

goods, the faster that capital can be reinvested to meet additionalcustomer needs.

Production control.

control machine time, worker hours, process time, delay time, anddowntime cost.

Quality control. the product performs satisfactorily.

Sales control.

Information on units, dollars, specific products sold, price of sales, meetingof delivery dates, and credit terms is useful to get a good perspective ofthe sales of the new venture.

Disbursements. The new venture should also control the amount of money paid out.


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WHY SOME BUSINESS PLANS FAIL

Goals set are unreasonable.

Goals are not measurable.

not made a total commitment to the business

or to the family.

has no experience in the planned business.

has no sense of potential threats or

weaknesses to the business,

No customer need was established for the

proposed product or service.


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THEMARKETING PLAN

MARKETING RESEARCH FOR THE NEW


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MARKETING RESEARCH FOR THE NEW

VENTURE

the gathering of data in order to determine

such information as who will buy the product

or service

size of the potential market,

price that should be charged,

the most appropriate distribution channel,

most effective promotion strategy

Marketing Research


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Marketing Research

Step One

Defining the Purpose or Objectives a list of the information that will be needed to prepare the

marketing plan.

ask people what they think of the product or service

background demographics and attitudes of theseindividuals.

potential customers willing to pay for the product orservice.

potential customers prefer to purchase the product or

service. customer to expect to hear about or learn about such a

product or service.


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Step Two

Gathering Data from Secondary Sources

Secondary sources - gathering information for the

industry analysis section of the business plan.

trade magazines, newspaper articles, libraries,government agencies, and the Internet provide

information on industry market and competitors.

Commercial data may also be available,


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Step Three

Gathering Information from Primary Sources

observation, networking. interviewing, focus

groups, or experimentation data collection

instrument, such as a questionnaire. competitors, the customer, and the industry, using

networking, trade associations, recent

publications.

Focus groups - gathering in-depth information.

issues in an informal, open format.


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Step Four

Analyzing and Interpreting the Results

Depending on the size of the sample, the results

can hand-tabulate or entered on a computer.

the results evaluated and interpreted in responseto the research objectives specified in the first

step of the research process.

data cross-tabulated to provide more focused

results.

UNDERSTANDING THE MARKETING


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UNDERSTANDING THE MARKETING

PLAN

Situation analysis

Background of venture

Strengths and weaknesses of venture

Market opportunities and threats Competitor analysis

Marketing objectives and goals

Marketing strategy and action programs

Budgets

Controls


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Characteristics - MARKETING PLAN

To provide a strategy for accomplishing the company missionor goal.

based on facts and valid assumptions.

Allocation of all equipment, financial resources ,humanresources must be described.

provide for continuity, successfully meeting longer-term goalsand objectives.

should be simple and short.

success of the plan may depend on its flexibility. specify performance criteria that will be monitored and

controlled.


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Marketing Mix

Combination of product, Quality of components or materials, style, features, options, brand

name, packaging, sizes, service availability and Warranties

Price,

Quality image, list price, quantity, discounts, allowances for quickpayment credit terms, and payment period

Promotion

Media alternatives, message, media budget, role of personal selling,sales promotion (displays, coupon) Media interest in publicity

Distribution wholesaler & length of channel, geographic coverage, inventory. and

transportation

Other marketing activities


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STEPS IN PREPARING THE MARKETING PLAN

Situation analysis

Tells about past and presents business achievements of

new venture

Target Market Specific Group of potential customers towards venture

aims its marketing plan

Market segmentation

Process of dividing a market into definable andmeasurable groups for purposes of targeting marketing

strategy


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WHY SOME PLANS FAIL

Lack of a real plan The marketing plan is superficial and lacks detail and

substance, ly regarding goals and objectives.

Lack of an adequate situation analysis It is invaluable to know where you are and where you have

been, before deciding where you want to go.

Unrealistic goals lack of understanding of the situation.

Unanticipated competitive moves, productdeficiencies, and acts of Gods


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THE ORGANIZATIONAL PLAN

LEGAL FORMS OF BUSINESS


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LEGAL FORMS OF BUSINESS

three basic legal forms of business formation

(1) proprietorship,

(2) partnership,

(3) corporation


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TAX ATTRIBUTES OF FORMS OF BUSINESS


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TAX ATTRIBUTES OF FORMS OF BUSINESS


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important considerations and strategies in recruiting andassembling an effective team and creating an effective andpositive organization culture.

First, the entrepreneurs desired culture must match thebusiness strategy outlined in the business plan.

Second, the leader(s) of the organization must lead and be rolemodels for their employees.

Third, the entrepreneurs should be flexible enough to trydifferent things.

Fourth, it is necessary to spend extra time in the hiring process.

Leadership needs to establish core values and provide the

appropriate tools so that employees can effectively completetheir jobs.

Finding the most effective team and creating a positiveorganization culture is a challenge is just as critical as having aninnovative, marketable product.


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The Financial Plan

OPERATING AND CAPITAL BUDGETS


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OPERATING AND CAPITAL BUDGETS

Capital budgets - to provide a basis forevaluating expenditures that will impact the

business for more than one year. To project expenditures for new equipment,

vehicles, computers, or even a new facility.

evaluating the costs of make or buy decisionsin manufacturing or a comparison of leasing,buying used, or buying new equipment.


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Pro-forma income statement

Projected net profit calculated from projected revenues

minus projected costs and expenses

PRO FORMA CASH FLOW

Projected cash available calculated form projected cash

accumulation minus projected cash disbursement

help justify

pro forma balance sheet reflects the position of the business at the end of the first

year. summarizes the assets, liabilities, and net worth


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BREAK-EVEN ANALYSIS

volume of sales at which the business will neither

make a profit nor incur a loss.

break-even sales point the volume of salesneeded to cover total variable and fixed expenses.

proforma sources & applications of funds

Summarizes projected sources of funds availableto the venture and how these funds will he

disbursed

planning tools is designed to provide clear picture of where funds come


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planning tools is designed to provide clear picture of where funds comefrom, how they are disbursed, the amount of cash available,the generalfinancial well-being of the new venture.

The pro forma income statement provides a sales estimate in the first

year (monthly basis) and projects operating expenses each month. Cash flow is not the same as profit. It reflects the difference between

cash actually received and cash disbursements.

Many new ventures have failed because of a lack of cash, even when theventure is profitable.

The pro forma balance sheet reflects the condition of the business at theend of a particular period. It summarizes the assets, liabilities, and networth of the firm.

The break-even point can be determined from projected income.

measures the point where total revenue equals total cost.

The pro forma sources and applications of funds statement understandhow the net income for the year was disposed of and the effect of themovement of cash through the business.

emphasizes the interrelationship of assets, liabilities, and stockholdersequity to working capital.

creating and starting the venture em ch 3

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