Once i have an idea, how do I build a story around that business?

how do entrepreneurs get an idea?

What Questions are we answering today?

GB 370 Unit 2 Notes The Nature of Entrepreneurship • Entrepreneurship: o The process of planning, organizing, operating, and  assuming the risk of a business • Entrepreneur o Someone who engages in entrepreneurship • Small Business o A business that is privately owned by one individual or a  small group of individuals; it Don't forget about the age old question of What does enthymeme mean?
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has sales and assets that are  not large enough to influence its environment  Predictable or Not • Some are natural o Michael Dell: (sold newspapers o Steve Jobs o Bill Gates • Some came later o Howard Schultz (essentially created/runs Starbucks) o Colonel Sanders (KFC business) • Some got lucky o Roxanne Quimby (Burt’s Bees) The Role of Entrepreneurship in Society: • Research Findings: o Most new businesses fail, those that survive often do so  because the entrepreneur works for little income o More than 98% of US Businesses 100 employees or fewer o Most U.S. workers work for small businesses  o The majority of small businesses are owner operated  (person who started it still probably runs it today) o Small business is a strong presence in both mature and  emerging economies o Small businesses have a strong effect on job creation,  innovation, and are important to big businesses The Importance of SMBs in the United States: Most exports, and most new jobs come in the back of these SMBs  - most SMBs in US are concerned with services Easy to get into retail if you’re a mom and pop boutique because  Entrepreneurship’ s Role in Society • Small Businesses’ Role in Job Creation o Create many of the new jobs in the U.S. o Dominate sectors that have added the most jobs o Represent 92% of all U.S. exporters • Innovation o Major innovations are just as likely to come from SMBs as  from large firms o Much of what is created in the high-technology sectors  comes from start-up companies Representative Jobs Created and Lost between 2007-2008 Job Losses: ­ Aetna ­ Walmart ­ Home Depot ­ Verizon Communications, Sprint Nextel Corp ­ Johnson & Johnson ­ IBM ­ Merck ­ Pfizer ­ Caterpillar Job Gains: ­ Whole Foods Market ­ Microsoft ­ T-Mobile ­ Google ­ Nordstrom ­ Cisco Systems ­ Deloitte ­ Accenture ­ Edward Jones Entrepreneurship’s Role in Society (Cont’d) • Importance to Large Businesses o Most products made by large manufacturers are sold to  customers by small businesses o SMBs as suppliers provide large firms with essential  services, supplies, and raw materials o Large businesses outsource many routine business  operations such as packaging, delivery, and distribution to  SMB Small Businesses (Businesses with < 20 employees) By Industry:• Services are the fastest growing segment of small-business  enterprise • continued job growth requires new firms  What Questions are we answering today? 1. how do entrepreneurs get an idea? 2. Once i have an idea, how do I build a story around that  business? 1. to attract customers 2. to attract financing  3. Do I need a totally original idea? 1. what is franchising?  4. What do I need to think about for legal structures? Chumming: get interest from someone to buy it then they will;  example: Jimmy Johns handing out free sandwiches on UM campus Entrepreneurship is a process  Pursuit of opportunity without regard to resources currently  controlled:  ❖ Approach 1: Get Lucky • Inspiration through an open mind and asking dumb questions • One day i opened a bottle of Snapple Element to drink and  thought “why can’t Pine-Sol smell like this? What if this was a  cleaning product?” ❖ Approach 2: Ask People • Ask people their opinions, thoughts, questions  ❖ Approach 3: Brainstorming • Define your purpose • Choose participants • Choose a facilitator • Brainstorm spontaneously, copiously • No criticism, no negatives Getting into the Game: • Identifying a Genuine Business Opportunity: ­ who are my customers? ­ Where are they? ­ In what quantities will they buy? ­ At what price will they buy my product? ­ Who are my competitors?­ How will my product differ from those of my competitors  Problem: Customers Don’t know what they want! “If I had asked people what they wanted, they would have said faster  horses” –Henry Ford (people are familiar with what they do all of the time) Writing a Business Plan • Business Plan: a document that summarizes the business  strategy and structure. It should include: o Business goals and objectives o Strategies used to achieve these goals and objectives o A plan of how the entrepreneur will implement these  strategies • Entrepreneurship and International Management o Expansion and growth potential in foreign markets o Entering a foreign country’s market can be an important  catalyst for success Market Shift Markets start off very small; customers never know what they want! Process • Idea: becomes an opportunity that creates a lasting value o Market analysis o Customer analysis o Competitive analysis • Business Canvas Explanation of Business Model Canvas ­ helps us create concept of customers, what we need to provide  value,  ­ fast, not as restrictive ­ 9 basic building blocks  ­ tool that helps you map, discuss, design new business models ­ each segment has specific value proposition ­ key partnerships, key resources, key activities, customer  relationships, cost structure, channels, customer segments, etc.  ­ gets you to focus on talking to and identifying customers right  away in a way that is clever and cheap  example: Man Men ­ the secretaries type a lot of letters; secretary pool primarily  concerned with copying stuff (no copiers back then); if you are  trying to sell a copier and you go to sell it, the man would say “why do i need a copy machine i already have secretaries”;  nobody wanted to pay $$$$  ­ Xerox company wants to put it in a way they know it creates  value with little up front cost---what should they do? Lease it to  them instead of selling it to them.  ­ No one actually owns a Xerox machine except for Xerox  ­ Xerox by never allowing anyone to own a copy machine  protected their property and made them money  conclusion:  Canvas Definitions: • Infrastructure o Key activities, resources (we need to have these things) • Offering o What value is offered (that customers cant get from  someone else) • Customers o Segments, channels, relationships -require special attention  -individual customers and businesses as customers  • Finances o Costs & revenue Linked In: (example of Business Model Canvas) • Key Partners ­ Data Centers ­ Content producers • Key activities ­ built platform • key resources ­ linked in platform • value proposition: ­ help people build a professional identify ­ help companies reach and identify talent ­ help marketers identify target audiences • customer relationships ­ network effects between customers ­ networks between companies • Channels ­ AppWebpage ­ In-Office Selling • Customer Segments ­ Internet users ­ Recruiters­ Advertisers & marketers • Cost structure ­ web hosting ­ marketing ­ product development ­ administration/overhead • revenue streams ­ free offerings and premium upgrades ­ hiring solutions ­ marketing solutions  Lean Start-up: • very hot right now • focus is experimentation and creating a framework to change  strategy • borrows deeply from “crossing the Chasm” by Gordon Moore and  Clayton Christensen on innovation • Scientific Management for the 20-teens o The Lean Startup o Startup Owner’s Manual  Three Parts: PART 1: • Vision: what is the idea and how are you defining it? • Experiment: o What is the most basic premise of your idea? (not as  easy as it sounds) o Pay attention o Netflix ▪ ➢ MVPs: Minimum Viable Product o Put down something that is close o Strip out all essential features (- MVP for Netflix: DVD rental store online) • Brand Name? o Get customers on board with the beta version ▪ they do understand (crossing the chasm) o don’t use your name if you’re scared !• Mr. Gentry’s favorite: SmoekScreen –there is not actual product  but we gauge interest by selling like there is (6-8 weeks for  delivery_ PART 2: • Steer o Do not hypothesize the customer o Avoid castles in the sky (hockey stick curves, delays) • Measuring o Scientific management requires incredible amounts of data o Take every opportunity to experiment (split halves, short  duration) o For example, Amazon with monthly Prime pricing  (experiment lasted 10 days in November of 2012) • Harder when you’re big • CUT BAIT  if it doesn’t work, stop doing it PART 3: • Accelerate o Similar to the “Nail it then Scale it” premise o Keep production batches small (even if it is a service) ▪ No, you will not scale but you’re placing less at risk ▪ The ability to learn faster from customers is the  essential  competitive advantage that startups MUST possess (pg. 193) • “Startups move from failure to failure; they are not small  versions of large companies” – Steve Blank • We have to embrace that rather than build a bullet proof  business plan  Structure of Entrepreneurial Organizations: ❖ Starting the New Business • Buying an Existing Business ( go through a “business  broker”) o Business has a proven ability to draw customers and make  a profit (the business is a going concern). o Networks (e.g. customers and suppliers) are established o Negative: New owners inherit any existing problems • Starting from Scratch o Avoids problems associated with previous ownerso Freedom to choose suppliers, equipment, location, and  workers o Negative: more business risk and uncertainty; (expensive,  a lot of up front costs, high chance of failure due to the  unknown)  Someone else might have thought of it – Franchising: • The Franchising Agreement o Governs the operation of a franchise business by the  entrepreneur (the franchisee) under a license by a parent  company (the franchiser) o The entrepreneur pays the parent company for use of  trademarks, products, formulas, and business plans  • Franchising Advantages: o Reduced financial risk of new business success through  experience provided by franchiser o Training, financial, and management support by franchiser • Franchising Disadvantages: o Start-up fees to purchase franchise o Limitations of franchise (market area, product, customers);  restrict how far you can grow as a franchise o Loss of independence due to imposed operational controls  of franchiser Picking a Franchise • Entrepreneur magazine has a long and awesome list • Current winners: o Hampton Inn by Hilton o Anytime Fitness ($60k-400k) o Subway ($110k-250k) • Supercuts o Net Worth of $500k o Liquid cash of $150k o Franchise fee $30k o Royalty - 6% Getting Started: Legal Structures: • Sole Proprietorship o Easy!!! • Partnership • Corporationo C Corp o S Corp o LLC ➢ Sole Proprietorship • The simplest structure, with usually one individual who  owns and operates the enterprise • A good choice if you want to work alone • The tax aspects are appealing because it is included on  your personal income tax return • The disadvantages: o Personally responsible for your company’s liabilities o Raising the money could be difficult ➢ Partnership • Two Kinds: general and limited partnerships • In a general partnership, the partners manage the  company and assume responsibility for the partnership’s  debts and other obligations • A limited partnership has both general and limited  partners. The general partners own and operate the  business and assume liability, while the limited partners  act as investors only o Limited Partner can do nothing with the business • A major advantage of partnership is the tax treatment • Personal liability is a major concern of a general partnership.  They also require more legal and accounting services • if you use a partnership, be sure to draft a document detailing  how business decisions are made, how disputes are resolved,  and how to handle a buyout ➢ Corporation • This is more complex and expensive than other business  structures • It is an independent legal entity, separate from its owners,  requiring more regulations and tax requirements • The business owner benefits by the liability protection • Another plus of a corporation is the ability to raise money, sell  stock, and continue indefinitely • Corporations are formed under the laws of each state with its  own set of regulations • Downsides/Disadvantages of corporations:  o Higher costso More complex regulations than a partnership or sole  proprietorship o Requires more accounting and tax preparation services o Owners of the corporation pay a double tax on the  business’s earnings view page 44 of unit 2 lecture slides for Tax Structures ❖ S Corporation • More attractive to SMBs owners than a regular corp. due to appealing tax benefits while still providing business owners liability protection • Owners of S corporations who don’t have inventory can use the cash method of accounting, which is simpler than the  accrual method • They have up to 100 shareholders, making it possible to  have more investors and attract more capital • Gets a little shady –the 100 shareholder rules mean that  you can get through a lot  • Downsides: o High legal and tax services costs o Must file articles of incorporation, hold directors and  shareholders meetings, keep corporate minutes, and  allow shareholders to vote on major corporate  decisions • Differences in S and C: o S Corporations only issue one class of stock o S corporations can only be owned by individuals,  estates, and certain types of trusts  What you will ultimately do  Setting up an LLC: • If limited liability is not a concern, you could begin as a  sole proprietorship or a partnership • After you have profits, you may want to consider another  legal structure • To start an LLC, file articles of organization with the  secretary of state where you plan to do business and plan  accordingly if you plan to do business in multiple states Financing the New Business: ➢ Sources of New Business Financing: o Personal resources o Strategic alliances o Lenderso Venture capital companies o SMB Investment companies o SBA Financial Programs The Performance of Entrepreneurial Organizations: • Trends in New Business Start- Ups Gig Economy (down);  increased entrepreneurial opportunities for minorities and women (up) crossovers to SMB by former large-business employees (down) better survival rates for small businesses (up) Success in Entrepreneurial Organizations: Reasons for Failure: 1. Managerial incompetence/ inexperience of the entrepreneur. 2. neglect in not devoting sufficient time and effort to the business 3. weak control systems that do not  warn of impending problems 4. insufficient capital to sustain the business until it starts to turn a profit New Hotness Right Now: • Internet of things • Autonomous Vehicles • Additive manufacturing • FinTech • Tracking customers/making data  Reasons for Success: 1. Hard work, drive and dedication  by the entrepreneur 2. Careful analysis of mkt.  conditions provides insights about  business conditions 3. Managerial competence through  training and experience contributes  to success 4. Luck sometimes plays a role