usa today collegiate case study: entrepreneurship: economics

8/9/2019 USA TODAY Collegiate Case Study: Entrepreneurship: Economics

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Collegiate

Case

Study

THE NATIONS NEWSPAPER

Some would like to build awall around U.S. economyBy David Lynch

...................................................................................5-7

Business plans should besimple, passionate

By Greg Farrell..................................................................................8-10

Whats your target market?.....................................................................................9

Case Study Expert

Discussion questions, futureimplications and resources............................................................................................11

www.usatodaycollege.com

By David LynchUSA TODAY

If things go according to plan, the worldeconomy will chug along nicely throughthe new year.

That would be comforting news ifthings ever did go according to plan.

Actually, 2006 could see plenty of nastysurprises. For one thing, the worldeconomy, though expanding, isdangerously imbalanced. The resultingU.S. current account deficit reflectingthe gap between the nation's ravenousappetite for imports and its anemicsavings is now at levels that manyexperts fear could trigger a run on thedollar, soaring interest rates and globaleconomic pain.

Meanwhile, investment is pouring intorisky emerging markets as if the pastdecade's turmoil in Argentina, Turkey,Thailand and Russia never happened.

And all that stands between a barrel of

oil and a triple-digit price tag is a strike inNigeria, unrest in Venezuela or revolutionin Saudi Arabia.

For all that, both the InternationalMonetary Fund and the World Bankexpect solid global growth of 3.2% thisyear, about the same as in 2005.

If prognosticators seem sanguineperhaps it's because many of the samewarning signals flashed red one year ago,and yet, the economy still barreledahead, even overcoming epic naturaldisasters.

"2005 was a year that has lulled a lot ofinvestors, policymakers and governmentofficials into a dangerous and false senseof complacency," says Stephen Roachchief economist for Morgan Stanley inNew York.

Terror attacks. A trade war with China.Even a historic epidemic of potentiallylethal "bird flu." There's no end to the listof potential economic catastrophes thatcould arise this year.

Copyright 2006 USA TODAY, a division of Gannett Co., Inc. All rights reserved.

Japan

China

India

Russia

UnitedKingdom

U.K. considered the top economic allyWhich country will have the most positiveeffect on the future of the U.S. economy?

USA TODAY Snapshots

Note: Multiple responses allowed.

By Jae Yang and Karl Gelles, USA TODAY

47%

40%

29%

23%

15%

13%

EuropeanUnion

Source: Harris Interactive online survey of 1,833 adults age 18 and older.Margin of error: 2 percentage points.

As our global economy expands, businesses and government must be acutelyaware of the fluctuations and imbalances in markets, oil prices and other eco-nomic indicators. Leaders must be able to anticipate potential problems, chal-lenges and needs. While competition is still a top concern, border security andglobalization are the newest matters shaping world economics and stability.This case study examines some of the causes and consequences and advan-tages and disadvantages of the current age of global economic integration.

Entrepreneurship: Economics

World economy expanding, butfaces dangerous balancing actVulnerable emerging markets, volatile oil prices bear watching

Deborah L. Wince-SmithPresident, Council on Competitiveness

...........................................................................................11


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AS SEEN IN USA TODAYS MONEY SECTION, JANUARY 12, 2006

Reprinted with permission. All rights reser ved. Page 2

But three dangers mushroomingglobal imbalances, vulnerable emerging

markets and volatile oil prices seemespecially noteworthy.

Too much red ink

To many economists, the swollen U.S.current account deficit looms as thebiggest potential hazard. In a nutshell,the United States spends too much andsaves too little, and Asia saves too muchand spends too little. (Moribund Europedoesn't do enough of either.)

No one knows for certain when the

day of reckoning will come. But Roach,and many others, say the USA and theworld cannot go on like this indefinitely.

"There are significant downside risks tothe global economy financial marketsright now are not pricing in any of theserisks," warns Nouriel Roubini, a formerWhite House economist in the Clintonadministration who runs the influentialwww.rgemonitor.com website.

Last year, the U.S. financed its excessivespending by selling almost $800 billion

worth of Treasury securities to foreigncentral banks and investors.

At 6.4% of total economic output, that'san unprecedented level for a majoreconomy. The U.S. is able to get awaywith such profligacy largely because thedollar plays a uniquely central role inglobal commerce.

But here's how a crisis could unfold: Ifforeigners conclude the dollar washeaded for a fall because of theenormous U.S. deficit, they would cutback on purchases of U.S. debt. To enticethem to buy, the Federal Reserve wouldhave to raise interest rates, perhapssignificantly. Higher interest rates couldchoke off economic growth, even as thefalling dollar ignited inflation by boostingthe prices of imported goods.

In 2005, the dollar defied predictions ofan inevitable decline. But it is unlikely tokeep doing so, according to Roubini.

The greenback benefited last year froma one-time change in U.S. tax law that

encouraged companies to repatriateforeign profits and from the Fed's rateincreases.

The tax provision has expired, and theFed is believed to be near the end of itsmonetary tightening.

"Our ability to finance ourselvesdepends upon the willingness of foreigncentral banks to hold dollars. That

willingness is going to be shrinking (this)year," Roubini says.

Even under optimistic assumptionsonce the crisis hits, the economic pain inthe USA could be like nothing thecountry has suffered in decades.

An abrupt end to the USA's ability toobtain sufficient foreign financing couldsend the dollar into free fall, cutting 21%to 28% from its value, according toresearch by Sebastian Edwards, a

Healthy growth forecastThe global economy looks set to continue expanding in

2006. Will it? Percentage change from previous year in realGDP global growth:

Source: Worl d Bank By Sam Ward and Julie Snider, USA TODAY

3.4% 3.5%

2.1%

3.0%

4.0%

1.4%1.7%

2.5%

3.8%

3.2%

3.2%

1996 1997 1998 1999 2000 2001 2002 2003 2004 20051 20061

1 Projection

There are significantdownside risks to the

global economy.

Nouriel Roubini,former White House economist


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Reprinted with permission. All rights reser ved.

professor at UCLA's Anderson School ofManagement. That would increase theprice of a $21,000 foreign-made sedan toalmost $27,000, unless dealers opted toabsorb the blow.

In the first year, 3.6% to 5% would beslashed from per capita economicgrowth. That would almost certainlypush the USA into recession, perhaps forseveral years, according to Edwards, whopresented his findings at last summer'sannual Federal Reserve conference in

Jackson Hole, Wyo.

"Never in the history of moderneconomics has a large industrial countryrun persistent current account deficits ofthe magnitude posted by the U.S. since2000."

Emerging market risks

Another danger might be brewing inthe so-called emerging markets. Capitalflows this year into developing nations inLatin America, Asia and Central Europeare expected to hit a record $345.2billion, according to the Institute ofInternational Finance. That surpasses theprevious high set in 1996, just before theAsian financial crisis, and is up 62% in thepast two years.

Emerging markets enthusiasts shrug offreminders of the euphoria-and-collapsecycles that hit Thailand in 1997, Russia in1998, and Argentina in 2000. It's differentthis time, say firms such as JPMorgan.Countries, particularly in Latin America,have built up foreign-exchange reservesthat should allow them to ride out anyfinancial crisis and have introducedeconomic reforms that give their

economies greater stability. Rather thandepend on private capital flows from richcountries as they did in the 1990s,developing nations now rely on strongexport industries.

Bond holders are so impressed thatthey regard emerging market securitiesas little riskier than U.S. Treasuries,according to the JPMorgan EmergingMarkets Bond Index Global (EMBIG). Inlate 2002, investors demanded anadditional 91/2 percentage points ofyield as compensation for the riskinvolved in holding emerging marketsbonds compared with U.S. TreasuriesToday, the spread on the EMBIG is down

to little more than 2 percentage points.

But emerging markets also have hadthe economic winds at their back for thepast couple of years. Strong globaldemand boosted commodity prices, amajor help for soybean exporters such asArgentina and oil producers such asVenezuela. And U.S. interest rates wereso low, yield-hungry investors including normally cautious pensionfunds were drawn into countries suchas Brazil or Hungary.

Now, global growth is slowing, and U.S.rates are higher. "There's a lot to worryabout," says Desmond Lachman of theAmerican Enterprise Institute, who wasamong the first to warn of problems inArgentina before its historic default.

While no one is predicting a repeat ofthe problems that rocked half a dozencountries in the 1990s, emergingmarkets remain vulnerable to sharpchanges in the global environment. If thedollar tanks, their surging exports wouldstall. Higher oil prices could deal them a

double whammy, inflating their energycosts while depressing the economies ofmajor customers.

Any unexpected mishap could causethe spreads between emerging marketdebt and U.S. securities to balloonmaking it more expensive forcorporations in developing countries tofinance their operations, Lachman says.

USA: Unprecedented

current account deficitthreatens financialmeltdown.

Venezuela:Charismatic

leftist leader fomentinganti-American alliance.

Saudi Arabia:

Al-Qaeda wouldlove to disruptthe kingdoms oilindustry.

China: Epidemic of

localized protests couldget out of hand or es calatetrade tensions with USA.

Hungary: Runaway

finances suggest thisemerging marketcould stumble.

Brazil: One of nine

Latin Americancountries scheduledto hold elections,unsettling markets.

European

Union: Little signthat sluggisheconomies aregetting in gear.

U.S. current account deficit deepensThe U.S. current account deficit, reflectingthe nations reliance upon foreign bor-rowing to finance todays consumption,is now historys largest. Annual deficits:

96 98 00 02 051

(in billions)

0

-$200

-$400

-$600

-$80004

Trouble spots could derail global economy gainsThough the outlook is good, it isnt hard to imagine what could go wrong.

Oil prices riseWith little spare capacity, oil pricescould continue their climb. In dol-lars per barrel:

$63.94

Source: Energy Information Administration

$44.08

0

$20

$40

$60

Wed.1/7/05

Capital flows to emerging marketsShrugging off memories of recent cri-ses in Asia, Latin America and Russia,yield-hungry investors are shovelingcash at developing nations.(in billions)

$317.9

$100

$200

$300

096 061051

$323.9

1 projections; Source: Institute ofInternational Finance

(percentage point premium)

Sources: World Bank, JPMorgan

Emerging market spreadBond holders are now asking only asmall premium to buy securities fromdeveloping nations. The spread is lessthan 2.5 percentage points over thereturn on U.S. 10-year Treasuries.

12/0512/99 00 01 02 03 04

7.51

2.37

0

4.00

8.00

-$124.9

-$800.0

Source: Bureau of Economic Statistics

1 projection

Reporting by David Lynch and George Petras, USA TODAY; graphic by Adrienne Lewis, USA TODAY

-$668.1


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Reprinted with permission. All rights reser ved.

Politics also might complicate the economic outlook,

especially in Latin America. Elections are scheduled in eightcountries this year, including presidential and legislativecontests in Brazil and Mexico. The voting takes place amid aclear drift away from the free-market policies favored by theUnited States.

So far, little of this seems to be making an impression. "Themarkets seem to be pricing in close to zero probability ofsomething going wrong," Barclays Capital wrote in a Dec. 8note to clients.

Energy 'super spike'

One year ago, no one predicted twin hurricanes would wreckmuch of the U.S. Gulf Coast oil infrastructure, sparking gasshortages and soaring pump prices. But today, with oil prices atabout $64 per barrel, it doesn't take much imagination toconjure up fresh scenarios of price jumps.

Spare oil supplies amount to 1.9 million barrels per day, downfrom more than 6 million a day three years ago. Any event thatidles significant output for a prolonged period politicalturmoil in Venezuela, revolution in Saudi Arabia, a generalstrike in Nigeria would threaten the world economy.

"With spare production capacity so low, the market isparticularly vulnerable to a supply shock," the World Bank saidin its 2006 economic forecast.

If oil supplies were cut by 2 million barrels per day, priceswould hit $90 a barrel this year and remain at $70 next year,according to the World Bank. The price spike would add 2.6percentage points to the inflation rate, which is 2.1% now, andcut global growth in half.

How likely is such a price spike? Goldman Sachs oil analystArjun Murti spooked markets in March with a forecast of a

"super spike" taking oil prices as high as $105 per barrel. OnDec. 12, he reiterated that view in a note to clients, adding that"non-existent spare capacity" supported the prediction.

John Kingston, global director of oil for Platts, is moreoptimistic. He expects prices to ease this year with newproducing wells in the Gulf of Mexico, Russia and Nigeriaboosting the market's cushion.

Still, he frets that continued Iraqi turmoil could pinch. Dailyexports there of 1.4 million barrels remain below prewar levels,according to Platts. Anti-U.S. insurgents last year mounted 96attacks on the country's aging network of pipelines andproduction facilities, or one every four days. There is littlereason to expect quick improvement.

"The spot that concerns me the most is Iraq, and not so muchthe insurgents," he says. "The oil industry there has been heldtogether by spit and bailing wire. It's antiquated and needsmassive capital investment."

To those such as Roach, who are inclined to emphasize therisks that things won't go exactly as expected, the linksbetween potential problems are the most worrisome element.The USA's fat current account deficit could sink the dollar. As itplummets, emerging markets' exports dry up and oil prices,which are denominated in dollars, rise. In no time, what startsas one country's difficulty becomes a global contagion.

"This is what we signed up for when we bought intoglobalization," Roach says. "The next global adjustment ordownturn most likely will reverberate very quickly around theworld with a speed we haven't seen before."


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AS SEEN IN USA TODAYS MONEY SECTION, MARCH 15, 2006

By David LynchUSA TODAY

Can the United States run a war and anopen economy at the same time?

In the wake of the Dubai portsimbroglio, some lawmakers are sayingthe U.S. needs to rethink its openness.Rep. Duncan Hunter, R-Calif., chairman ofthe House Armed Services Committee,for example, is demanding that all of theUSA's "critical infrastructure" be ownedand managed by American citizens.

While there is no across-the-boardmove to erect walls around the U.S.economy yet, some analysts worry thatthe combination of national security andindustry-specific economic fears could

spiral.

Hunter's legislation would requireforeign companies that own anythingdeemed "critical" to national security,economic security or public health to sellwithin five years. Sen. Charles Schumer,D-N.Y., reacting to the surging U.S. tradedeficit, has proposed imposing a blanket27.5% tariff on Chinese imports if Beijingdoesn't allow its currency to appreciate.

"Today, it's the Middle East. Lastsummer it was China. Next it could be

Russia," frets Nouriel Roubini, aneconomist who operates thergemonitor.com global economy website.

A combustible mix of security andeconomic dangers has left Americansincreasingly unsettled about theirengagement with the rest of the world.Color-coded terror alerts and thepersistence of the global al-Qaedanetwork mean danger is a fact of dailylife. Compounding public unease is the

relentless economic rise of China andIndia, which seems to imperil manyAmericans' financial futures.

From 1994 until last year, a solidplurality of Americans saw foreign tradeas an opportunity rather than a threat,according to USA TODAY polling. In May

2000, for example, trade was backed 56%to 36%. But in a June 2005 survey, by a48% to 44% margin, more respondentsjudged it a threat.

"Globalization creates vulnerabilitiesThere's no question about it," says MiraWilkins, an expert on foreign investment

Some would like to build awall around U.S. economyProtectionism makesa big comeback,grounded in fear and

growing distrust

By Sam Ward, USA TODAY


6/11

Page 6Reprinted with permission. All rights reser ved.


at Florida International University in Miami.

The USA isn't alone in getting cold feet over globalization.Europe, too, is witnessing a renewed concern. In France, Spainand Poland, governments are blocking foreign firms fromacquiring companies even in seemingly benign consumerindustries.

Global ties grow

If the concerns suddenly seem acute, it may be because inrecent years the globalization era that began with the collapseof communism in 1989 has intensified dramatically. Example:Cross-border mergers and acquisitions totaled a staggering $3.2trillion last year, almost three times the level just five yearsearlier, according to the Bank for International Settlements inBasel, Switzerland.

The U.S. certainly is much more intertwined with othereconomies than ever. In 1971, when President Nixon cut thelink between the dollar and gold, U.S. imports were equivalentto 5.5% of the economy. Last year, they hit 16.2%.

The furor over the DP World ports takeover may havesurprised the White House. But it didn't come out of nowhere.Last summer, it took enormous political arm-twisting to get avery modest Central American trade deal through Congress.Then, in the fall, a Chinese enterprise was forced to abandon itsplanned acquisition of Unocal, a second-tier American oilcompany, after Congress heatedly objected. And now an Arabfirm has been told it can't be trusted to operate cargo terminalsat American ports.

"I think we're riding a wave of xenophobia," says William

Reinsch, president of the National Foreign Trade Council, a pro-trade group.

Still, the reaction to date against foreign investment whether for national security or economic reasons has beenlimited. Both the ports controversy and last year's Unocal dust-up involved foreign companies that were government-controlled. Moves to limit Chinese imports have been confinedto specific industries, notably textiles and apparel.

"It's not competitive concerns like the 1980s. GM and Fordare in rough shape, but there's not much sympathy for helpingthem" with import limits, says Todd Malan, president of theOrganization for International Investment.

The ports furor catalyzed the debate over security andglobalization, though the immediate prospect of an Arabcompany operating terminals at several U.S. ports appears tohave faded. On March 9, Dubai Ports World announced itwould spin off its newly acquired American operations so longas it could do so without losing money.

More complicated times

This isn't the first time the U.S. has faced the issue. An earlierage of global economic integration in the decades before WorldWar I ended with the guns of August 1914. After the war, traderecovered in fits and starts. But then the 1930 Smoot-HawleyTariff triggered a protectionist frenzy that by 1934 had slashedinternational trade by two-thirds.

During the Cold War, the relationship between nationalsecurity and commerce seemed clear. Buttressing theeconomies of Western Europe helped knit together an anti-

International tradeThe U.S. economy has become more dependent on foreign trade over the past 35 years. Imports as percentage of GDP:

By Marcy E. Mullins, USA TODAY

Source: Bureau of Economic Analysis

1970 2005

16%

14%

12%

10%

8%

6%

4%

2%

0

5.4%

16.2%

1980 1990 2000


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Page 7Reprinted with permission. All rights reserved.


Soviet alliance. There was no question about who the enemy

was and no question of trading with him. Today, life isn't sosimple. Instead of a government like the Soviet Union, theenemy in the war on terror is a stateless network of Islamicextremists.

"We're now in an era where the national security interests ofthe United States are a lot more ambiguous, and there's moredisagreement about them," says Jeffry Frieden of HarvardUniversity. "Even if there's agreement on fighting terrorism, it'snot clear what the economic implications of that are."

Those who argue for changing the rules of the game targetthe inter-agency Committee on Foreign Investment in theUnited States (CFIUS), which approved the ill-fated ports deal.The committee gathers representatives of 12 agencies tobalance foreign investments' gains against potential securitythreats.

Hunter, who helped kill the ports deal, wants to tighten thegovernment's method of reviewing proposed foreignacquisitions of U.S. companies. Currently, "Economic orcommercial implications apparently supersede nationalsecurity considerations," the lawmaker wrote in a March 6letter to colleagues.

A Government Accountability Office investigation last yearalso concluded that the panel "narrowly defines whatconstitutes a threat to national security." Since 1988, CFIUS hasrejected only one of more than 1,500 proposed foreign

acquisitions of U.S. companies: China National Aero-TechnologyImport & Export's 1990 attempt to acquire a Seattle aircraftparts maker.

Among those approved was a deal that left another Chinesefirm producing 80% of the magnets used in the Pentagon's"smart bombs," according to Sen. Evan Bayh, D-Ind.

If any security worries are found in the panel's standard 30-day review, an additional 45-day probe can be launched. Butthe GAO report said that the committee, which is chaired bythe Treasury Department, is reluctant to order suchinvestigations for fear of discouraging foreign investment. Of470 proposed deals from 1997 to 2004, CFIUS initiated only

eight investigations, the report said.

Hunter's proposed legislation would mandate 45-day probesfor "transactions that may have national security implications."Treasury Secretary John Snow on Tuesday backed increasedscrutiny for deals involving state-owned foreign companies butwarned against "isolationist" moves.

Others say the criticisms are overstated. Phillip Swagel, who

was chief of staff for the White House Council of EconomicAdvisers in President Bush's first term, says the Pentagonrepresentatives on the panel had a myopic focus on security."They just didn't understand the value of foreign investment inthe United States," says Swagel, now a fellow at the AmericanEnterprise Institute. "They'd rather foreigners not be here atall."

Edward Graham of the Institute for International Economics,author of a forthcoming book on national security and foreigninvestment, says CFIUS has been more effective than thestatistics suggest. Although the panel formally rejected onlyone deal, it effectively blocked 20 others, he says. Many otherswere modified by compelling the foreign acquirer to acceptchanges in how it would operate the American asset.

"What major security failure has happened in the U.S.? Nonethat we know of," Graham says.

U.S. dependent on foreign investment

As Congress rethinks foreign investment, Clyde Prestowitz,president of the Economic Strategy Institute, thinks the newfocus on security ignores the U.S. economy's dependence uponforeign investment. The USA requires about $3 billion inforeign capital every working day to finance the huge gapbetween its consumption of foreign goods and its exports. Thecountry just doesn't have the luxury of walling itself off,Prestowitz says: "We're shooting ourselves in the foot here

People don't realize this, but our economy is on life supportfrom foreign lenders and investors."

Questions over foreign investment aren't going away. Nextmonth, Chinese President Hu Jintao is scheduled to meet withPresident Bush at the White House even as the TreasuryDepartment nears a decision on formally stating that Chinamanipulates its currency for trade advantage.

Likewise, thanks to high oil prices, the Dubai Ports deal won'tbe the last Arab investment here. Since 1998, members of theOPEC oil cartel have earned $1.3 trillion in petrodollarsaccording to the Bank for International Settlements. Much of itis staying home, helping fuel enormous increases in regional

stock markets. But tens of billions of petrodollars have surgedinto U.S. corporate bonds, equities and direct investment. Andmore are probably coming.

"Foreigners have a whole pile of dollars," says Reinsch. "Idon't know what we expect them to do with them."


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AS SEEN IN USA TODAYS MONEY SECTION, JULY 31, 2006

By Greg FarrellUSA TODAY

Eureka! You've come up with a great idea for an invention ora new business. Or you've discovered a niche in themarketplace crying out to be filled. What's the next step?

In a perfect world, you simply set up shop, watchyour business flourish, and count the money as itflows over the transom.

But in an imperfect world, you need seed moneyto launch your business. And to get that capital,you'll have to go begging for investment, either froma bank, a venture capitalist, an angel investor or youruncle.

Most of these sources of funds, except maybe youruncle, will want to see a business plan. For manyentrepreneurs and Bill Gates wannabes, that's themost difficult part of launching a business:translating your idea, your vision, into a dry littledocument designed to win over a skeptical investor.

It's even more difficult than closing the first salefor your business.

A business plan has to convince an investor that your idea fora company is solid and that you're the right person to make thewhole thing work.

Venture capitalists and successful entrepreneurs stress thatthe best business plans should be:

Short and simple

Extensive financial projections aren't needed. Clarity aboutthe start-up's product or service is.

"The first piece should be an executive summary,"says Shanda Bahles, general partner at El DoradoVentures, which backed EarthLink and a variety ofother technology companies.

"Think of it as a calling card to get you in the door,to get me asking questions. Do NOT write a 50-pagebusiness plan with five-year financial models. It'sgarbage in and garbage out."

"It should be two pages," declares Stuart Reid, co-founder of Urban Communications Transport, astart-up broadband provider in New York City. "Ifyou can't say it in two pages, you can't do anything."

Chip Hazard, a general partner at IDG Ventures inBoston, says the plan should be "precise, crystalclear" about what the new company is all about. "Itnever ceases to amaze me how many business

plans I see where after you read it once or twice, you still don'tknow what a company does."

The key to describing your business is understanding what

Business plansshould besimple,

passionateKeep financial projectionsminimal, anticipate trouble By Robert Deutsch, USA TODAY

The real key tobeing an entre-preneur whohas a chance tosucceed isknowing pre-cisely whatbusiness yourein. If you dont,you die.

Doug Frazier,co-founder of Urban

CommunicationsTransport


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benefit you're providing to yourcustomers, says Doug Frazier, the otherco-founder of Urban CommunicationsTransport.

"You have to learn what businessyou're in," says Frazier, whose previouscompany was a cable television provider.With cable, "People told us we were inthe communications business. Nope, wewere in the entertainment business."

Now, with broadband, "We realized wewere in the problem-solving business.People use the Internet so they canwork. They use their telephone tocommunicate and solve problems.

"The real key to being an entrepreneurwho has a chance to succeed is knowingprecisely what business you're in. If youdon't, you die."

Introduce the management team

Obviously, investors want to know theways in which you plan to build thebetter mousetrap. But venture capitalistswill be most interested in the peoplebehind the product.

"The management team is key," saysReid. "Investors invest in people, notideas. You've got to pull a strong teamtogether."

"Investors are always going to look atmanagement," says Thomas Cooper, adoctor who has started four successfulbusinesses in the medical field andteaches entrepreneurship at ColumbiaBusiness School. "Who are these peopleand can they pull it off? What are theirbackgrounds?"

Contrary to conventional wisdom,Cooper says it's not always a plus whenthe management team has vastexperience in the industry in which itwants to launch the new business.

"If someone's too steeped in anindustry, they think there's only one waythings can be done," he says. "I'd ratherlook for someone on the periphery,someone who knows enough to be

dangerous."

People on the outside are usuallywilling to try new ways to do business,Cooper says. As an example, Cooperrecalls an experience he had in medicalschool in the 1960s. Doctors then triedto determine if a patient had fluid in hislungs by tapping an area between the

patient's ribs and listening to the sound.

"It was a technique called percussion,"Cooper says. "People would get real goodat that. I was thinking, can't you come upwith a device that would measure that?Eventually, it bec ame ultrasound. In1966, I knew just enough to bedangerous, but if I'd been practicingmedicine for 20 years and had thattechnique down, why would I do it anyway but that?"

Anticipate problems and challenges

Pollyannas don't make goodentrepreneurs.

"Anybody can have a great idea, andanybody can be an entrepreneur," saysFrazier. But the business plan has to"explain that you've thought theproblems through."

Addressing your business' potentialproblems is a must, Cooper says.

"Writing a business plan, a formalbusiness plan, forces you to answer thetough questions," he says. "It's one thingto be out with a bunch of guys at a bar

and you're having a beer and you'retelling them about your business idea.Everything sounds great. You can do thisand you can do that, and it all looks easy.A business plan forces you to address theholes in your idea."

Finding those holes and thinkingthrough your responses to them iscrucial, says Cooper, who scans lots ofbusiness plans as a partner at ApertureVenture Partners.

"Rather than have investors raise these

issues to you, it's better if you've thoughtthem through," Cooper says. "Any sharpinvestor will figure out the weakness, soit's much better if you come out withthem. Most people don't want to enterinto the negatives, but I want to hear it. Ifinvestors have to bring up the negativesto you, it makes them think you haven'tthought your business through verywell."

What's your target market?

Identifying the target market is anessential part of a good businessplan. Author Rhonda Abrams,whose columns on small businessstrategies appear Fridays at usato-day.com, offers advice on targetmarket planning in her book,Business Plan in a Day. She says thatsection of a business plan should:

u Identify the geographic locationof your target market.

u Describe demographic charac-teristics of target customers traitssuch as age, income level, familysize, gender and ethnic group.

u Explain customer motivationsand purchasing patterns.

u Define the market's size. "Is yourmarket big enough to keep you inbusiness? If you're looking forinvestors, you need to convince

potential funders that your compa-ny can grow to a size that will maketheir investment profitable."

Resources to assess a target mar-ket include: maps of the targetmarket area; customer surveys;market-research reports; industryresearch indicating market trends;books, magazines and other mediageared toward the target market;Census data showing customerdemographics.


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Show a path to profit

A good business plan isn't stuffed with financial projections,but it does explain how the business will make money.

"The most important thing is sales," says Cooper. "If you can'tget someone else to open up their wallet and turn money overto you, it doesn't make any difference how great the idea is."

Cooper described a failed business venture he started, toprovide dental and eye care to patients in nursing homes. Therewas such an obvious need for this service that he figured thesales would be automatic.

"The need was so great that I assumed there would be apayment source, but there wasn't and I failed."

Cooper wants details on how an entrepreneur is going toclose the first sale, how many sales he or she can make in thefirst year and how long it will take to close those sales.

"The more specific they are, the more credibility they have,"he says. "It's one area that people don't emphasize enough."

Reid echoes that sentiment, saying that the business idea canbe great, but investors want to know how the new companywill actually make its money.

"It's the end part that young entrepreneurs don't recognize,"he says. "There's got to be an exit strategy so the investors get

their money out, a f inancial plan that the money guysunderstand."

"They're in the business of building wealth," adds Frazier. "Ifyou're not furthering that goal, why would they give youmoney?"

Make it personal

Finally, a good business plan should not be a formulaic, fill-in-the-blanks document that looks squeezed out of some cookie-cutter computer program.

"There are ideas that you don't think are interesting," says

IDG's Hazard, "and then there are business plans that I getwhere somebody has used a software package and followed atemplate. They all have a common format and they follow themto a T. That just shows you that someone's going through themotions."

Hazard says he'd much rather see an entrepreneur's firereflected in the executive summary. "The passion that anentrepreneur has is fabulous. It's a burning desire to change theworld. You love that when that comes through."


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Page 11 Copyright 2006 USA TODAY, a division of Gannett Co., Inc. All rights reser ved.

1. Reflecting on the risks in emerging markets and the energy sector thatDavid Lynch outlines in the article World Economy Expanding, how canthinking about macroeconomic trends in the global economy help newbusinesses make choices that will boost their competitiveness?

2. In what ways could the focus on the current U.S. deficit stifle entrepreneurship and innovation?

3. How would limiting imports decrease the competitiveness of the U.S.?

4. Many Americans are worried about the degree to which the U.S. economy is tied toother countries. Do you see this as a threat? Can you imagine any means by whichthe U.S. could use this interdependence to boost our national security?

5. The article on business plans for start-ups suggests that templates or standardformats should not be used for business plans. Do you agree? How could suchstandardization help start-ups and the overall competitiveness of the country?

6. Why do you think investors in new businesses look for management thatdoesnt have significant experience in the industry in which they want to launchtheir start-up?

DISCUSSION QUESTIONS

CASE STUDY EXPERT: DEBORAH L. WINCE-SMITH

1. How do you think global economic and political instability affectentrepreneurs and investors willingness to take risks? Think of historicalexamples of entrepreneurs, and discuss the benefits and disadvantages during

similar economic and political environments. How would the instability described in the articles affect you?

2. As the global economy becomes increasingly interdependent, do you think investment in new businesses should becomemore global, too? What would be some of the advantages and disadvantages of having, for example, an Asian investor finance aNorth American start-up?

FUTURE IMPLICATIONS

Deborah L. Wince-Smith is president of the Council on Competitiveness. Founded in 1986, the Council is theonly national organization that brings together leading CEOs, university presidents and labor leaders topromote U.S. productivity growth, success in global markets and a rising standard of living for all Americans.The Councils regional, national and global portfolio aims to strengthen Americas innovation capacity.

An internationally recognized expert on innovation strategy, science and technology policy, regional economic development andglobal competition, Wince-Smith was most recently nominated by President Bush to serve as a member of the Oversight Board ofthe Internal Revenue Service. Wince-Smith serves on a number of boards and committees, including the Board of Directors of theNASDAQ Stock Market, the National Science Boards Task Force on Transformative Research, the Secretary of Energy AdvisoryBoards Nuclear Energy Task Force; the National Research Councils Committee on Innovation Models for Aerospace Technologies;the Board of Governors for Argonne National Laboratory, the University of California Presidents Council for Los Alamos andLawrence Livermore National Laboratories; and the University of Pennsylvania Museum of Archaeology and Anthropology. She is atrustee of the National Inventors Hall of Fame and a national juror for the MIT Lemelson Award for Invention.

Wince-Smith graduated Phi Beta Kappa and Magna cum Laude from Vassar College and received her masters degree fromKings College, Cambridge University. She is a frequent speaker at conferences and symposia and an author on innovationand competitiveness.

ADDITIONAL RESOURCES

u Council on Competitivenesswww.compete.org

u Innovate Americawww.innovateamerica.org

uSmall Business Administrationwww.sba.gov/starting_business

/index.html

Deborah L. Wince-Smith

usa today collegiate case study: entrepreneurship: economics

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