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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.

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Class Name

Instructor Name

Date, Semester

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

  • Manufacturing—makes tangible products & sells them through distributors or directly

  • Wholesale—buys in bulk from manufacturers & sells smaller quantities to retailers

  • Retail—sells individual items to consumers

  • Service—sells time/expertise to consumers


Defining an Organization

Core Values





Organizational Core Beliefs

Beliefs entrepreneurs use to guide organizations.

Example: My restaurant will support local organic farmers.

Core beliefs affect:

  • materials used in production

  • prices charged

  • how customers are treated


Mission Statement

A concise statement of

  • Target customers

  • Products & services

  • Markets served

  • Use of technology

  • Importance of public issues & employees

  • Focus on survival, profitability & growth



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


  • Risk tolerance & innovation

  • Orientation with respect to people, teams & outcomes

  • Attention to detail

  • Communication norms

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

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).


Competitive Advantage

Determine What consumers Need and Want.

Having a Unique Knowledge of Your Market


Six Factors of Competitive Advantage

  • Quality

  • Price

  • Location

  • Selection

  • Service

  • Speed/turnaround


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

Competitive Advantage


Competitive strategy



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.

3 Litmus Test

Define the Unit of Sale

Manufacturing—one order

Wholesale—a dozen of an item

Retail—one item

Service—one hour of service time.

3 Litmus Test

Average Sale Per Customer

Average sale per customer

– average cost of sale per customer

Average gross profit per customer

3 Litmus Test

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 Litmus Testof Different Items


3 Litmus Test

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 Litmus Test)

—Retail Business


Five Breakthrough Steps Entrepreneur’s Litmus Test

Can Take:


  • Calculating the unit of sale.

  • Determining the economics of one unit of sale.

  • Substituting someone else’s labor.

  • Selling in volume.

  • Creating jobs and operating at a profit.

Result: The entrepreneur creates jobs and wealth.

3 Litmus Test

  • Currency-a term for money when it is exchanged internationally.

  • Foreign exchange (FX) rate-the relative value of one currency to another.

3 Litmus Test

Determining the Value of a Business

  • Asset valuation-a method that analyzes the underlying value of a business’s assets as a basis for negotiating a price.

    - Book value

    - Adjusted book value

    - Liquidation value

    - Replacement value

  • Earnings valuation-a method that asses the value of a business based upon a stream of earnings that is multiplied either by an agreed-upon factor (the capitalization factor) or by the price/earnings ratio (for a publicly traded company).

    - Historical earnings

    - Future earnings under current ownership

    - Future earnings under new ownership

  • Cash flow valuation- a method of calculating the worth of a business by using projected future cash flows and the time value of money

Key Terms Litmus Test

asset valuation

barriers to entry

cash flow valuation

competitive strategy

core values

cost of goods sold (COGS)

cost of services sold (COSS)


direct labor

earnings valuation

economics of one unit of sale (EOU)

foreign exchange (FX) rate







unique selling proposition (USP)

unit of sale