CREATING BUSINESS FROM OPPORTUNITY. UNIT 1• ENTREPRENEURIAL PATHWAYS. Class Name Instructor Name Date, Semester. Performance Objectives After this lecture, you should be able to complete the following Performance Objectives.
After this lecture, you should be able to complete the following Performance Objectives
1. Define your business.2. Articulate your core beliefs, mission, and vision.3. Analyze your competitive advantage.4. Perform viability testing using the economics of one unit.5. Understand how to value a business.
Apple and Personal Computer
Market-a group of people or organizations that may be interested in buying a given product or service, has the resources to purchase it, and is permitted by law and regulation to do so.
The Business Definition
Target market—who will it serve?
The offer—what will the business offer the customers?
Production and delivery capability—how will it provide the products & services it sells?
Types of Business
Defining an Organization
Organizational Core Beliefs
Beliefs entrepreneurs use to guide organizations.
Example: My restaurant will support local organic farmers.
Core beliefs affect:
A concise statement of
Overall view of desired company future state
Built upon core values & beliefs
Compelling across the organization
Employees need to be empowered to fulfill it
Largely shaped by leadership
Core values in action
The Decision Process: Routes to Finding Opportunities
Self- or group-developed business ideas
Research on “hot” business ideas or growth areas
Product or service idea first & search for a market or business second
Competitive advantage – whatever you can do better than the competition that will attract a sufficient number of customers to your business so it can succeed.
- Must be sustainable in order to create long-term
- Your competition is defined by your target market and
can be direct (selling the same or similar products to
the same market).
- or indirect (selling different products that compete for
the same share of customer spending).
Determine What consumers Need and Want.
Having a Unique Knowledge of Your Market
Six Factors of Competitive Advantage
Is Your Competitive Advantage Strong Enough?
Sell to a market that is large and growing.
Sell to a market where the competition is able to make a profit.
Sell to a market where the competition is succeeding but is not so powerful as to make it impossible for a new entrepreneur to enter.
Sell a product or service that solves problems consumers may have with the competition. (barriers to entry –the factors that contribute to the ease or difficulty of a new competitor joining an established market.
Sell a product or service at a competitive price that will attract costumers.
Checking Out the Competition
Competitive offers –How does your offer compare with those of your leading competitors?
Unique Selling Proposition (USP)- the unique feature and benefit that sets a company apart from its competition?
Cost Structure-what is different about your business activities and the cost of doing business, compared to the competition?
Competitive Strategy: Business Definition and
Feasibility Revisited: The Economics of One Unit as a Litmus Test
Gross profit-total sales revenue minus total cost of goods sold.
Economies of one unit of sale-the amount of gross profit that is earned on each unit of a product or service a business sells.
Unit of sale-the basic unit of a product or service sold by the business.
Define the Unit of Sale
Wholesale—a dozen of an item
Service—one hour of service time.
Average Sale Per Customer
Average sale per customer
– average cost of sale per customer
Average gross profit per customer
Cost of Goods Sold & Gross Profit
Cost of Good Sold (COGS)- the cost of selling one additional unit of a tangible product.
- cost of materials used to make the product (or
deliver the service), and
- cost of labor directly used to make the product
(or deliver the service).
Cost of Services Sold (COSS)-the cost of selling one additional unit of an intangible service.
Unit of Sale as a Combination of Different Items
Economics of One Unit (EOU)
Method for seeing if a business can be profitable
If one unit of sale is not profitable, then know matter how many units you sell, the business will never be successful.
Direct labor-the wages of employees that can be figured into the cost of a product or service.
Economics of One Unit (EOU) —Manufacturing
Economics of One Unit (EOU) —Wholesale
Economics of One Unit (EOU)
Economics of One Unit (EOU) —Service Business
Economics of One Unit (EOU) —Example
Five Breakthrough Steps Entrepreneur’s
Result: The entrepreneur creates jobs and wealth.
Determining the Value of a Business
- Book value
- Adjusted book value
- Liquidation value
- Replacement value
- Historical earnings
- Future earnings under current ownership
- Future earnings under new ownership
barriers to entry
cash flow valuation
cost of goods sold (COGS)
cost of services sold (COSS)
economics of one unit of sale (EOU)
foreign exchange (FX) rate
unique selling proposition (USP)
unit of sale