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Entrepreneurship and Small Business Management. Chapter 5 Creating Business from Opportunity. Ch. 5 Performance Objectives. Define your business. Articulate your core beliefs, mission, and vision. Analyze your competitive advantage. Perform viability testing using the economics of one unit.

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entrepreneurship and small business management

Entrepreneurship and Small Business Management

Chapter 5

Creating Business from Opportunity

ch 5 performance objectives
Ch. 5 Performance Objectives
  • Define your business.
  • Articulate your core beliefs, mission, and vision.
  • Analyze your competitive advantage.
  • Perform viability testing using the economics of one unit.
the business definition
The Business Definition
  • Who will the business serve? (target market)
  • What will the business sell? (the offer)
  • How will the business provide the products and/or services it offers? (production and delivery capability)
basic types of businesses
Basic Types of Businesses
  • Manufacturing—makes a tangible product and sells it through distributors or direct
  • Wholesale—buys in bulk from manufacturers, and sells smaller quantities to retailers
  • Retail—sells individual items to consumers
  • Service—sells an intangible product to consumers or other businesses
defining an organization
Defining an Organization
  • Core Values—the fundamental ethical and moral philosophy and beliefs
  • Mission—the business intention, and the core strategy for achieving it
  • Vision—an overall “picture” of what you want the business to become
  • Culture—the working environment
core values
Core Values
  • Are used to guide decision making in the organization

Example: My restaurant believes in supporting local organic farmers.

  • Affect business policies, such as:
    • Type of materials used in production
    • Prices charged
    • How customers are treated
the mission statement
The Mission Statement
  • Defines the purpose of the business in 40 to 50 words
  • Provides direction and motivation
  • Addresses these topics:
    • Target customers and markets served
    • Products and/or services provided
    • Use of technology
    • Importance of public issues and employees
    • Focus on survival, profitability, and growth
vision
Vision
  • Broad view of the company’s desired, future state
  • Built on the company’s core values
  • Must matter across the organization
  • Employees need to be empowered to fulfill it
culture
Culture
  • Largely shaped by company’s leaders
  • The core values in action
  • Learned by employees through stories, ceremonies, events, and symbols
  • Impacts behavioral norms such as:
    • Risk tolerance and innovation
    • Attitudes toward people, teams, outcomes
    • Communication—language and methods
routes to finding opportunities
Routes to Finding Opportunities
  • Self- or group-developed business ideas through brainstorming
  • Researching “hot” business ideas or growth areas
  • Starting with a product or service idea, and then searching for a market
competitive advantage factors
Competitive Advantage Factors
  • Quality: Can you provide higher quality than competing businesses?
  • Price: Can you offer a lower price on a sustained basis than your competition?
  • Location: Can you find a more convenient location for customers?
competitive advantage factors continued
Competitive Advantage Factors(continued)
  • Selection: Can you provide a wider range of choices?
  • Service: Can you provide better, more personalized customer service?
  • Speed/Turnaround: Can you deliver your product or service more quickly?
is your competitive advantage strong enough
Is Your Competitive Advantage Strong Enough?

Unique Selling Proposition (USP): What features/benefits set your business apart from its competition?

  • Compare what your business offers to what competitors offer.
  • Determine if you have a cost advantage or cost disadvantage.
strategy versus tactics
Strategy Versus Tactics
  • Competitive strategy
    • Your plan for outperforming the competition
    • Combines business definition with sustainable, competitive advantage
  • Tactics—ways in which you carry out your strategy
feasibility analysis
Feasibility Analysis

Economics of One Unit of Sale (EOU): What is the amount of gross profit earned on each unit of the product or service your business sells?

  • Define the unit of sale.
  • Calculate the amount of gross profit per unit.
  • If one unit of sale is profitable, the whole business is likely to be profitable.
define the unit of sale
Define the Unit of Sale
  • Manufacturing—one order
  • Wholesale—multiple of the same item (example: a dozen roses)
  • Retail—one item
  • Service—one hour of service time or a standard block of time devoted to a task
  • Combination—average sale per customer minus average cost of sale per customer (example: restaurant meals)
determine the average sale per customer
Determine the Average Sale Per Customer
  • If the business sells differently priced items, use the average sale per customer as the unit of sale.
  • Average unit of sale = total sales divided by the number of customers
calculate gross profit per unit
Calculate Gross Profit Per Unit

Gross profit per unit = selling price per unit minus COGS or COSS per unit

  • Cost Of Goods Sold: cost of labor and materials required to make one additional unit of a tangible item
  • Cost Of Services Sold: cost of labor and materials required to provide one additional unit of a service
the entrepreneur s strategy
The Entrepreneur’s Strategy:
  • Start a business with a profitable EOU
  • Hire others to create the units
  • Increase volume of units being sold
  • Start new businesses or expand opportunities

Result: The entrepreneur creates jobs and wealth.

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