Entrepreneurship

Entrepreneurship So You Want to be an Entrepreneur? Shanghai Economic Summit 21 July 2012 Andy Eyschen

Entrepreneurship and theAustrian School of Economics • Austrian School of Economics: 3 productive functions in the marketplace • Labor, capital, and entrepreneurship • Labor = work, capital = tools, land, money, etc. • Entrepreneurship is “direction” of the operation, decision making on where to invest, what to produce, how much labor to employ, etc. • Entrepreneurship = risk taking and innovation

Innovation and Risk • Entrepreneurs (business people, inventors, artists) take risk to: • Create a product/service that did not exist before and hopefully create demand, or • Create a better product to replace one that already exists, and take away demand, or • Create the “same” product but at a cheaper price, again taking away demand • Innovation is necessary in each case • Risk can also mean producing products nobody wants

Origin of Entrepreneurship • Word “entrepreneur” coined by JB Say, French economist, around 1800 • His definition: “The entrepreneur shifts resources out of an area of lower and into an area of higher productivity and greater yield” • Three areas of focus: resources, productivity and yield

Why do it? • Without new businesses starting, no wealth and no jobs will be created and progress will be limited • Wealthy countries have lots of entrepreneurs • Governments do not and cannot create wealth: entrepreneurs do!

Facts • Every large business started off as a small business • Most made their founders very rich • One of the richest men in the world, Bill Gates, was unheard of until 1980, and started a small company • Every great entrepreneur has a great story to tell • Being an entrepreneur is living life “on steroids”

How does it relate to Freedom? • Entrepreneurs must be free to choose their business, free to invent or innovate, free to change their goals and methods, and as free as possible from Government intervention • Hence: Free Enterprise • Being my own boss gives me more freedom • Having more money also gives me more freedom

Why Me? • Do I think for myself? • Do I know what I want? • Am I self-motivated? • Am I self-disciplined? • Do I see solutions rather than problems? • Are you “passionate” about something?

Choosing Your Business • The “bright” idea • The “technology-centered” idea • The “transplant” idea • The “innovative idea”

The many Hats worn by theEntrepreneur • The Chief Executive Officer • The Chief Marketing Officer • The Chief Operations Officer • The Chief Innovation Officer • The Chief Financial Officer

Chief Executive Officer • What is your Business Idea? Can you express it in 60 seconds or less (“elevator pitch”) • Why is it a good idea? • Who is on your Team? What background do they have to make it the “right” Team? • Have you tried out your idea? How? Prototype? Existing customers? • What are the risks and how will you mitigate?

Chief Marketing Officer • The business idea • What problem does it solve? • What is special about your solution? • Features • Benefits • Who is your customer? • Where is your customer? • How much will your customer pay? • How do you reach your customer?

Chief Operations Officer • Your product or service from an operational perspective • Raw materials – from where? • Labour – how many and where? • Skills required • Cost targets – how will you achieve them? • “Packaging” your product or service

Chief Innovation Officer • What is your product or service and what makes it innovative? • Is this innovation demanded by the marketplace? • What differentiates it from the competition? • How long will your “first mover advantage” last? • How can your Team turn this idea into a success?

Chief Financial Officer • How much money will we need to get started? (Startup Capital) • How much revenue will we make? • How big are our expenses? • Cost of Sales • Fixed and Variable Costs • How much profit can we make? • How soon will we “break-even”?

Where to get the money? • Equity versus Debt • Equity Sources • Savings (your own or opm) • Venture Capitalists, Investors, Business “Angels”, Grants • The Stock Market • Debt Sources • Loans from Banks • Loans from other sources (friends, NGOs, governments, etc.) • Bonds

Components of a Business Plan(Main Points) • The Vision and Mission • The background: what triggered the business idea? • Define the problem and describe the solution and why it will solve the problem • How do I create my solution (product or service) • How will I market the idea, get customers? • Who will do it and when? • The Financials – how much money will it cost, how much profit can it make and when?

How to make it a success? • Be very clear why you are in business • Take positive action from the start • Select the “right” partners and staff • Find enough money to get started (under-capitalization is a major source of failures) • Grow “slowly” and within your means • Set realistic objectives and milestones • Monitor continuously and make adjustments when necessary • Know when to quit

Tips from an Entrepreneur(Michael Masterton) • Start a business that you know! Avoid restaurants, retail shops, travel and entertainment outlets! • Choose a business that has these 3 qualities: • An efficient marketing model (cost and time of acquiring a customer) • A substantial profit margin • Considerable “back-end” potential (better and higher priced products and services to existing customers)

Tips from an Entrepreneur (2) • Make sure there is an active market! • Develop a unique selling proposition! • Forget Retail and Glamour business! • Sell first, tweak your product later! • Don’t throw good money after bad!

Final Words of Advice • Be brutally honest with yourself; wishful thinking will get you nowhere; don’t be afraid of the truth! • A great idea won’t make it without great management: hire good people! • Ask how to make the business successful, not how much money will I make! • Use help wherever you can get it; don’t let pride get in the way! You can’t do everything yourself! • Be friendly with your Bank Manager!

Q & AThank You!

Entrepreneurship