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Entrepreneurial Strategy

by: Bradford Lakin

Entrepreneurial Strategy 06J 125

Marketplace > University of Iowa > Business, management > 06J 125 > Entrepreneurial Strategy
Bradford Lakin
GPA 4.0

David Hensley

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David Hensley
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This 14 page Class Notes was uploaded by Bradford Lakin on Friday October 23, 2015. The Class Notes belongs to 06J 125 at University of Iowa taught by David Hensley in Fall. Since its upload, it has received 19 views. For similar materials see /class/228025/06j-125-university-of-iowa in Business, management at University of Iowa.


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Date Created: 10/23/15
Entrepreneurial Strategy Final Exam Review Chapter 6 Financial Resource Capabilities 39 39 Finance Life Cycle of the Business Understanding the financing stages Seed Stage The first funding benchmark This is the initial capital used to do product or service development patent filings market research and business partner recruitment Typically seed stage financing comes from the entrepreneur s personal savings and contributions from family members and friends Series A Stage Startup financing The new venture has its first revenues but still demonstrates no profitability This is the stage when outside investors may be brought into the firm Series B Stage After successful launch the venture proves the viability of its business model Funding is needed to develop the marketing plan to hire more staff or management team members and to establish strategic alliances Additional Stages C or even D and E rounds of financing focus on commercial loans lines of credit IPO and bridge financing Questions to Consider 1 WNP P PF Equot What type of business are you in Where do you want to locate the business What where and how big is your market What round of financing are you seeking How much money do you need What do you need the money for How quickly do you need the money Are you looking for debt or equity capital Eguiy Financing deals with an exchange of money for a share of business ownership In this type of financing you receive funds without incurring debt meaning that you do not have to repay a specific amount of money at any particular time However the major disadvantage of this type of financing is the dilution of your ownership interest and the possible loss of control that is associated with sharing of ownership with additional investorsts like having stock in a nonpublic company Sometimes you have decision making power sometimes you don t If you buy 50 equity in a company and its sold you get 50 of the profits Advantages of Eguiy Financing Source of Capital Increases Company s Net Worth Borrowing Capacity and Overall Financial Strength Enhance Credibility No Scheduled Repayment No Personal Liability Additional Help Available Similar to stock Disadvantages of Eguiy Financing Dilutes Ownership More Expensive than Debt Cannot Reverse the Transaction Give Up ControlFlexibility Difficult to Find Investors Debt Financing deals with borrowing money that is to be repaid over a period of time and most likely with interest This type of financing can be either long term repayment due over more than one year or more short term repayment due in less than one year Your obligations are limited to repaying the loan and as opposed to equity financing the lender does not gain an ownership interest in your business Advantages of Debt Financing I Fastest Decision Receive Funds Quickly I Lower Cost Than Equity Financing I No Loss Dilution in Ownership no stock involved Disadvantages of Debt Financing I Personal Guarantee Required Scheduled Repayment Principle and Interest Increases Leverage Debt Equity Take on partners Dilution of ownership High expected return Larger funding amount No short term payments Openended quotexitquot date Less restrictions Take on creditors Low expected return Smaller funding amounts Periodic payments Maturity date More restrictions Personal guarantees Adherence to predetermined financial ratios Personal Sources of Capital I Sweat Eguity quotfreequot time you devote to your venture ideas commitment energy and human capital devoted to the venture I Personal Savings money saved through work or business investments I Home Equity refinancing your home or seeking home equity loan Friends and Family can be a quick and easy source of capital but could also be problematic if the business fails AKA Foolsquot9 Don t know what they are doing they just like you and want to help I m advantages may include no collateral quick decision and below market interest rate ift parents could provide you with 20000 per year and avoid the gift tax EJuity benefits might include quick money and below market valuation The 5 C s of Credit Character your credit history and character have youpartners paid bills on time Capacity ability to repay loan cash flow quotmarry your partner well 1 lesson Collateral assets pledged to secure the loan Capital amount you need and your net worth Contribution your skin in the game Types of Commercial Loans ShortTerm Loans short immediate needs Lines of Credit seasonal financing Intermediate Loans 37 years for purchase of assets LongTerm Loans real estate and buildings Lending Officer Questions They are primarily concerned with repayment Have you invested savings or personal equity in your business totaling at least 25 percent to 50 percent of the loan you are requesting Remember no lender or investor will finance 100 percent of your business Do you have a sound record of creditworthiness as indicated by your credit report work history and letters of recommendation Do you have sufficient experience and training to operate a successful business Have you prepared a loan proposal and business plan that 39 your quot U of and to the success of the business Does the business have sufficient cash flow to make the monthly payments Angel Investor usually experienced business people who are often interested in seed investments as well as later stage investments They usually prefer to serve in a consulting role Key Questions for Angel Investors Does the investor have experience in this market What size of investment does the angel typically seek What is the angel s motivation to invest How long does the investor s due diligence process take Does the investor have a preferred deal structure Is the investor willing to coinvest with others The Angel Investor Concern with Business Success Investing Own Money Smaller Equity Share Small Business Experience Pa rttime Investor Valueadding Active Investor 30 ROI Minimum Short Due Diligence Process Angel Investor Criteria Exciting and Fun Proprietary AdvantageUnique Technology Cost Advantage Understandable Not Too Complex Not an Invention Plan for Profit Strong Management Team Affordable Investment Geographically Close Driving Rule Incremental Investing Opportunities Clear Exit Strategy Venture Capitalist professional investors only rarely investing seed capital These investors are interested in firms with high growth potential and in exchange for investment they require a proportion of ownership Venture Capital Overview Finance new and rapidly growing technologybased companies Purchase equity securities Add value through serving on boards contacts and future fundraising Take higher risks and expect higher rewards Have a longerterm orientation 37 years Venture Capital Firm Reguirements Cash out potential Equity share Familiarity with technology product market Financial provisions for investors Geographic location Investor control Investor group Rate of return Size of investment Stage of development ofthe quot Ability to evaluate risk lTeam Articulate regarding the venture Backgroundexperience Capable of sustained effort Managerial capabilities Management commitment References Stake in firm Nature of the Proposed Industm I Market attractiveness I Potential size I Technology I Threat resistance Strategy of the Proposed Business I Productdifferentiation I Proprietary product Tips on Raising Capital Raise money when you do not need it Learn as much about the process and how to manage it as you can Know your relative bargaining position If all you get is money you are not getting much Assume the deal will never close Always have a backup source of capital Chapter 7 The Evolving Management Team Entrepreneurial Leadership 1 2 3 4 5 Extract exceptional commitment and effort from organizational stakeholders Convince them that they can accomplish goals Articulate a compelling organizational vision Promise that their effort will lead to extraordinary outcomes Persevere in the face of environmental change Two key guestions to ask related to the entrepreneurs and the management teams if one exists skills 1 2 What is the depth of the team s knowledge and extent of their reputation in the types of market technologies and operations in which the new venture will be active What are team s management skills in the three key areas of marketing finance and operations Hiring Team Members and Employees Hire the person not the position It is difficult to fit somebody into a predefined box and in entrepreneurial organizations each person is required to do whatever it takes to help the new venture accomplish its goals People bring with them to the organization a wide repertoire of skills that are often untapped Find out what team members and employees like to do in their spare time and what approaches they might suggest to perform their work The goal is to have everyone bring their whole selves to work including creativity ingenuity and productivity Avoid the killer of innovative thinking the attitude that quotI already know all there is to know about this company because I or we started itquot This discourages the diversity of viewpoints Hire people smarter than you An entrepreneur who is intimidated by people with expertise she or he does not possess and who therefore hires only those who are less informed or educated must have great feelings of inadequacy that will hamper venture growth Provide clear to the team and to If these individuals did not contribute to the strategy mission vision code of behavior etc of the firm it should be articulated and explained fully to them Do not expect people to midread what they are supposed to do Build the kind of company for which you would like to work What type of environment leadership style teamwork and so on would you like to be surrounded by every day This should become the blueprint for building the organization that has the right people and the organizational culture in place to carry out its desired strategy Six Principles for Retaining Loyal People and Partners 1 385 V 3 1 Preach what you practice Communicate the vision mission goals and values of the organization Practice what you preach is also required Partners must also win Enable your vendors and partners to participate in winwin venture Be selective in hiring Select people with values consistent with the firm s Membership on the team is selective Use teams of talented people Use small teams for most tasks and give them the power to decide Provide simple rules for decisionmaking so team can act Provide high rewards for the right results Reward Longterm values and profitability Provide solid compensation benefits and ownership Listen hard talk straight Use honest twoway communication and build trust Tell people how they are doing and where they stand Six Tips for Finding the Best Advisors for Your Business 1 Recruit advisors for shortterm ob39ectives Startup business models evolve and change Don t recruit advisors who will help you with future products or future markets Focus on the shortterm and determine what skills introductions and knowledge you will need to accomplish you immediate business objectives Your advisors should help you fill the gaps for the next six months not six years 2 Advisors can help establish credibility This will help you attract customers partners key employees financiers and other essential ingredients to get your business of the ground It is often easier to persuade industry luminaries and prominent experts to join your advisory board than it is to persuade operational executives who are not used to the idea of devoting personal time to serve on boards 3 Look for advisors in unusual places One place is by getting referrals from the SBA s SCORE service Corps of Retired Executives program a national mentoring service for young entrepreneurs To find advisors who are specialist in your business you will need to be more creative Go to industry conferences or training workshops Open the yellow pages and call competitors from different regions you can learn from 4 A free lunch is often a better motivator than equity Advisors who prefer a free lunch are better than the ones who demand equity As a nice gesture you may offer equity over time but don t rush to do so If you attract a top advisor who is asking for equity make sure you structure the compensation over a payment schedule such as quarterly or annually rather than upfront 5 Don t treat advisors like 39 or suppliers It s not easy to hold advisors accountable This is because most advisors have income from other sources and will treat your business as a part time hobby or casual business interest Since they are usually not fiscally responsible in the same manner as a company officer or director they can easily walk way if they do no perform up to expectations 6 Set term limits Advisory board roles should have term limits such as 12 months or 24 months It is awkward and may even be potentially damaging to your business s reputation to kick out an advisor if he or she is not performing Setting term limits makes the transition happen naturally Benefits of Boards m Board members can supply networking and contacts to attract capital investment and to recruit employees and other members of the management team Credibility Outsiders will assume that the new venture has experienced assistance and that it is worth considering This will be helpful when trying to attract capital and management talent Mentoring An effective Board provides the entrepreneur with mentoring and guidance through prosperous and difficult times Ideally the Board should always include at least one member whom the entrepreneur trusts and with whom he or she connects on a personal level Choosing Board Members Is a mentor and trusted confidant Has built a management team Has attracted equity investors and debt financing Has created revenue and achieved positive cash flow Has developed strategic partnerships s knowledgeable about your industry Is experienced in the key operational challenges the venture will face in the next year or two Has recent successful experience in specific corporate functions and industries Complements rather than duplicates the strengths of the current management Chapter 8 Buildinq Networks and Strateqic Alliances Strategic Alliance a partnership usually a business partnership that is strategic because it is entered into by design with forethought to be of benefit A strategic alliance can be thought of as a valueadded partnership made up of independent companies that together manage the flow of goods and services along the entire valueaddedchain Finding the Appropriate Fit Among Partners and Resources Analyze people culture etc and make sure the strategic alliance will work Be able to clearly articulate how you will leverage each other s resources to create a winwin situation Look for areas where you have abundant resources These resources can be physical such as land but they may also include people and information In particular look for resources that you are currently underutilizing so that they are in effect surplus This is what you bring to a potential partnership THEN identify areas where you are lacking in resources personnel or access to information These are the resources you need from a partner Consider also the external factors the opportunities and threats How is your business environment changing and who will be your competitors in the next decade Begin by conducting a strategic analysis of the market sectors and target audiences that make the most sense for your business What are the most profitable areas Where is the greatest growth Understand clearly where you are so that you can find partners that best complement you Resource Gap The difference between you and what you need Identifying the resource gap helps you choose your partner Critical points underlying your strategic alliance There must be a strategic intent for the alliance and that intent must be linked with your abilities You should know what resources you have and how to make the most of them What you have an excess of or aren t optimizing is what you bring to the partnership What you lack but what is critical to attaining your vision is what you are looking for in a partner If you have a capacity how can someone else make use of it Making an inventory of your attributes prevents missed opportunities Useful Sources of Information to Help Make an Inventom of Potential Partners Acquaintances customers suppliers and so on Industry associations Chambers of commerce World Trade Council Diplomatic Missions for foreign companies Government Economic development authorities Library and Internet Annual Reports Investment Bankers Venture Capital Groups If you are interested in an organization buying one share in the company entitles you to information Partners also need to be similar in the following wavs I Make sure your values and your partners values align I Make sure the risks and benefits are shared I Commitment should permeate the organization I Make sure there is an understanding of why you re forming the alliance communicate properly why and the impact it is going to have Perceived need for the venture I Ownership of it risks and benefits should be shared I Commitment to it topIevel people often move on or retire commitment should permeate the organization I Communication styles communication is vital you must agree on how best to do it I Values openness respect and trust of outsiders I Finally there needs to be understanding Partners may not necessarily be the same but they need to agree on certain issues 0 You and your partner must be different in some ways similar in others and have mutual understanding In effect you are looking for someone just like yourself who is doing something different Choose someone with whom you can work both practically and personally Chapter 9 39 39 quotMonies for quot 39 39 Growth Myth valuable innovations are always revolutionary In fact most entrepreneurship and innovation is derived from incremental or evolutionary changes Four Innovation Strategies 1 Improving Core Business This strategy involves the r of 39 r to core products and services that can rapidly be 39 39 39and39 I I Strengths Fast execution and cost efficiency as quotnew and improvedquot ideas are added to the offerings of the company these changes often are not on radar screen of competitors Weaknesses Potentially inadequate responsiveness to market and competitor changes Structural Reguirements this strategy requires innovation supports in the organization that encourages these types of improvements Examples Microsoft Windows CP Ford Thunderbird 2 Exploiting Strategic Advantages This strategy moves the firm s innovation focus beyond its current strategic scope This enables the firm to leverage a unique brand and expand to reach a broader range of customers Strengths Involves a relatively lowrisk investment for potential high return strategic valuecost leverage Weaknesses This type of innovation could easily be duplicated by competitors Structural reguirements use of external resources such as consultants researchers and advertising agencies Examples Coleman introduction of portable grill Subway introduction of partnership with American Heart Association FritoLay introduction of Natural line of organic snacks without preservatives 3 Developing New Capabilities This strategy involves developing or acquiring new technologies competencies services and business to better serve the current strategic scope Strengths Builds and sustains longterm customer advantage and loyalty Weaknesses High investment cost and execution time Structural Reguirements This strategy demands an organization that is highly fluid and flexible including the use of joint ventures strategic alliances and licensing and franchising Examples AOL Time Warner Sam s Club OnLine Auction 4 Creating Revolutionary Change This strategy involves transcending the firm s current product and service lines to achieve fundamental changes to the strategic scope Using this strategy the firm envisions new business models new markets and new industries Strengths First mover advantage groundbreaking position Weaknesses Lack of urgency may exist high risk of imminent failure Structural Reguirements Virtual teams and alliances Examples Nokia Starbucks Amazoncom and eBay Strategic Thinking Ideas for Future Expansion Bundling with other products or services such as offering airfare hotel and car rental packages Adding a service to the product such as free ski wax with purchase of new skis Selling more to your current customers by offering the promotions or volume discounts for a limited time or by promoting frequent purchases via a loyalty campaign Reminding current customers by advertising specific benefits of the products or services of which customers may be unaware Finding a new distribution channel such as eBay or Amazoncom Creating a new occasion For example Hallmark is famous for promoting new holidays in order to encourage higher sales cereal manufacturers encourage consumers to eat cereal as a snack in addition to breakfast Offering various price points as hotels do with standard and deluxe suites Developing line extensions Disney is a master at expanding the use of its movie properties to toys clothing and books Introducing new levels of service such as American Express does with its card programs or as dry cleaning stores do with rush or regular service Expanding by offering new services Restaurants are expanding into the rental market where they are offering to rent their premises for cooking lessons cooking parties and even executive team training courses where team members can learn to break down their communication barriers by learning to cook together Developing new products in the same category Developing new products in a new category For products and services operating in socalled llmature categoriesquot it is wise to expand the definition of the category by combining one category with another by creating an entirely new category Finding new customers through a new distribution channel such as Avon and Tupperware successfully did Finding new customers in new geographic zones Redefining the target market Attract new customer groups such as teens or families for example Tilley the Canadian hat manufacturer expanded its target market by supplying hats for soldiers who were serving in the US Army s Desert Storm mission Repositioning the product or service from a niche to a mainstream category in order to attract a larger customer base Crossselling your products to new customers who are already your customers Financial institutions for example are learning to sell their loan services to those customers who are holding savings accounts at the same branch I Removing barriers to your current products or services Find out what the barriers to using your product or service have been I Selling your knowledge to others outside of your industry sector The Five Innovation Mistakes 1 Identifying the Wrong Problem 2 Judging Ideas or Solutions too Quickly 3 Stopping With the First Good Idea 4 Failing to Get Sponsorship 5 Obeying Rules That Don t Exist an 39 39 Friendlv 39 in the quot 39 quot 39 39 Venture 0 Provide as much information as possible to employees Knowledge stimulates creativity and people cannot solve problems they don t know exist Tell employees and team members about problems don t try to solve everything yourself 0 Give employees permission to say quotyesquot to customers suppliers and so on and make sure they have the resources they need to do so 0 Encourage experimentation Reward nice tries instead of focusing only on mistakes Make heroes out of the people who solve a problem in a different way so others get the courage to emulate them 0 Encourage employees to improve one thing every day Set up a suggestion system that collects ideas and solutions provides feedback to everyone who contributes an idea explaining whether or not it will be used and why and rewards participation through recognition by the management team 0 Visit customers organizations as well as other companies even ones outside your industry Have a llShare One Ideaquot day after these visits to discuss and potentially incorporate what you have observed at these other firms 0 Allow people to decorate their own work areas Seemingly minor changes like this send the message that you want people to think and behave at work much as they do with family and friends comfortably openly and productively Cultures in which employees are rewarded for llface time and other political behavior often implode Employees use most of their creativity to figure out how to work the political system and look good compared to others Successful entrepreneurial firms need and desire every member s creative contributions to keep the firm on the innovative edge of the industry and marketplace Chapter 11 Beyond the Strateaic quot 39 39 Model 39 39 Growth 39 0 Capital Management The need for greater initial capitalization It is easy to underproject the financing needed for expansion and as the firm grows there is insufficient capital at critical junctures 0 Market Monitoring The need for more and better market research Ironically as successful new ventures grow entrepreneurs or members of the management team may come to believe that success will be continual and whatever the firm launches is likely to reach predicted margins In fact markets change continually If the firm loses touch with shifting market needs or if it relies on outdated market research or insufficient market research the results can be disastrous 0 Innovation The need for skills in operating an innovative enterprise As we have seen some firms lake the innovative skills to embrace change successfully Innovation is key to survival Dinle fl xIKVI What Entrepreneur Carl D lvlmchug the VISION focus on stlategy and goals not plocess Find Way in snpnnn and rlUHd oxpmhnenmum give cleclslonemaking authoer and autonomy Communirntinq Create an open book culture sh 39Il lnq key pelrmmnnce metrics mrnnnauon Use you c rrln lllrllcatlt n l aml minnnnnnn systems to establish and Velop z lrlpelellc nnl as u eonuol vehicle Alluw dull 10110 nppol lurlilics lnl inlonml yrvlvnullkdliun arrlorlg employees liullL39lll39lg rolatlnnsl39lilm Ush cross funrtu l gmups Support workrllfe Integration Allow lor u ense ol lull and erlioynlenl in he hnn Managan Create and establlsh nol ms of What is acceptable behavlor and 7 and lrlorlilorirlg nnlhits L rlurnlarlu too for ways to select new employees based on an even balance of mlnneset nnd values as well as skllls and expenen thve fall and rrlealllngful nppmmnmes for Prnp nyees in develop and udwnce in the urqdrlizrlllon Setting duectlon Use your power to mediate not Cllclate Know that change and chaos are part or the entrepreneurlal Journey dud hnu way u unhldu lllonl M nd ng theV n Constantly check to make sure the business stays on trackwith strategy and goals not the process As a leaderyou have to constantly remind evenone ofthe strategy No matter how an entrepreneur structures the enterprise it is important to keep the core values as the guiding structural force Deep Structure is the foundation for business development Deep Structure is the simple set of rules that define the firm39s business logic or reason for being and its basic principles of organization If deep structure is developed in an organization the vision ofthe organization not policies and procedures become the guidingforce for business decision The point is to avoid beauracracy and to create an institution where all the parts are focused on the same goal By creating a structure that is not tied to processes the organization will be poised to capitalize on its strengths and redeploy its assets in a faster more relevant way Commu at g Informat n Decide what is important to your people and keep them on the same page Accessing and monitoring meaningful information is crucial to an organizations ability to make sound decision It is important for a business to track its growth the bottom line and competitive environment Although information always exists in an organization the key is to structure the flow of information to capture it quickly and share it with employees so that all people in the organization can be effective decision makers B Id ng Rela nsh 95 Touch base with people Maintain contact by doingthings like remember birthdays and accomplishments It means more when you are noticed by someone at the top ofthe organization You should carve time out of your schedule and make this an important activity Strong relationships are important not onlywithin an organization but also between the entrepreneur and staff and key people and organizations that are external to the firm To maintain the internal relationships it is important to provide for a balance between work and family life Employees who have this balance are much more likely to be effective contributors to the organization External relationships provide an objective resource for problem solving and allow for even fast information sharing Manag ng and Mon to ng Pol s A lot oftime gets wasted and negative environment is created when work politics occur Although politics are often unavoidable in an organization maintaining a constructive trusting environment is crucial to the structural informational and relational goals Negative behaviors can undermine an positive improvements the business is trying to develop Setting Direction There is going to be chaos Find ways to embrace it Use your power as a leader to mediate not dictate Because entrepreneurs are so involved with every detail of their business development once the business is selfsustaining it is difficult to step back and take a handsoff leadership role However at this phase it is crucial that the entrepreneur redirect his or her efforts from handling day to day tasks to developing a sustainable business organization The adaptable organization needs a unifying vision to govern its structure to create information sharing and to empower employees to make smart decisions The entrepreneur s next steps should focus on these leadership areas and allow the organization to govern itself Entrepreneurs and Failure The Warning Signs Performing consistent business plan diagnosis is important for the development of new ventures however it is sometimes difficult to selfevaluate Entrepreneurs frequently rely on external cues as warning signs that their business is not heading in the right direction To avoid common pitfalls that lead to failure of many businesses entrepreneurs should ask themselves a series of diagnostic questions at the launching phase of their venture to probe the degree to which their venture is vulnerable in its strategic foundation These Include Resource Management Doesdid your business prepare a written sales forecast Doesdid your business prepare a written forecast of cash requirements for at least 12 months into the future Doesdid your business prepare a written proforma capital expenditure forecast Doesdid your business use its plans to satisfy information requests from sources of capital andor creditors Employee Development It takes a long time to find good employees so you really need to do staffing forecasting Marketing and finance people are especially critical for high tech high growth Make sure you re getting the right people at the right time o Doesdid your business prepare a written staffing forecast 0 Did your business have problems in defining or anticipating products that customers would buy in sufficient quantities so that an attractive return would be provided to the investors in the business 0 Doesdid your business incorporate major goals and objectives spelled out in its plans into its employee performance appraisal system Customer Relationship Management This isn t a sales call show them you care Take the time to follow up with them and prove them and listen to get good feedback and the next time around they will end up coming to you because they feel like you care about their needs 0 Do your customers refer your business to their peers o Are you attracting your target customer 0 Are you incorporating customer feedback into your business development Monitoring Goals 0 Doesdid your business analyze its competition and prepare a written identification of strategies and measurable goals that extendextended three or more years into the future 0 Doesdid your business monitor its progress compared to its plans no less often than monthly 0 Did your business have problems in actually producing and selling the defined products at the costs anticipated o Doesdid your business use its plans for llpublic relations purposes by giving them to customers prospects employment candidates or others not specifically requesting them Entrepreneurial Strategy and Planning Symptoms Resource Management Management of finances becomes lax Directors can t document or explain major transactions Customers are given large discounts to enhance payments because of poor cash flow Contracts are accepted at below standard amounts to generate cash Materials are inadequate to meet orders Payroll taxes are not paid Suppliers demand payments in cash Employee Development Key personnel leave company Customer Relationship Management 0 Customer complaints increase Monitoring Goals Costs are uncontrollable Public recognition of business has not grown Product lines are not selling Management discussion on business development do not exist Keeping a Business on Track What to Watch I Anticipate financial problems I Monitor the company s business plan and business model to ensure that growth and profitability targets are met I Manage the costs and risks associated with economic problems I Keep a close watch on business trends that may require your business to change strategic direction I Understand the methods and alternatives available for resolving financial problems Remedies for Sore Spots I Strengthen the management team A company s risk of business failure is greatly increased when it depends on an overly centralized management team made up of the original founders Longterm health lies in the founders ability to recruit and retain qualified personnel who are capable of taking a guiding the business to its next phase of growth I Keep up with technology Operating in a marketplace where rapidly changing technology could render your products and services suddenly obsolete greatly increases your chances of business failure As a result management must stay abreast of technological developments attempt to establish product diversification and ensure adequate capitalization for ongoing research and modernization of equipment I Diversi customers su liers lenders and contracts If you want to grow your business even more you can t be a hostage to any third party who cannot be completely controlled Similarly excessive dependence on particular patents licenses concessions and related contractual advantages which may expire or be terminated significantly boosts your risk of business failure You can limit this risk by diversifying your product lines geographic trading areas targeted markets and distribution channels I Rethink funding for specific pro39ects I Upgrade information and monitoring systems You need to be aware of competition internal costs and budgets changes in the economic and political environment inventory controls management problems and internal conflicts cash flow and sales growth If your company gets this information in an organized timely and accessible fashion it will be easier to make informed day to day decisions or meaningful longterm strategic plans Get rid of the deadwood E underproductive personnel obsolete or idol equipment unused real estate and unnecessary employee benefits should be eliminated when cash is at a premium Clean up your accounts receivable Customers must be carefully monitored Don t provide further goods or services when overdue accounts reach certain levels As soon as a customer shows sign of difficulty paying obtain collateral to secure the obligation Use collection agencies and attorneys for larger problematic accounts If cash flow becomes a real problem consider discounting the accounts receivable at a commercial bank obtaining the services of a factoring company or obtaining credit insurance to protect against excessive baddebt losses


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