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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.