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TECHNOPRENEURSHIP – ENGG 405 MODULE 12
Topic Outcome:
• Apply basic accounting principles in making financial projections for the venture
ACCOUNTING AND FINANCIALS
A. Accounting for Startups
Finance is one of the most basic skills that any business must embrace to be successful, yet, financial
know-how, issues, and analysis are often the entrepreneur’s Achilles’ heels.
While the finance function is much more strategic than just financial accounting, both bookkeeping
and accounting are vital to every business’s success. This article will provide you with the basics, as
well as the other main benefits of thoroughly knowing your numbers.
What is accounting?
In a nutshell, accounting is the language of business – a means to summarize the financial picture of a
company which then helps us understand future prospects. Accounting answers questions such as what
do you own, what do you owe, and how well did you perform last year.
Accounting methods
Before you start your accounting, you’ll need to make a few decisions about the structure of your
business, like choosing your business entity-type, developing a detailed financial roadmap, choosing
an accounting method, and deciding on the initial shape of your accounting system.
• Cash basis: most common and where most startups will start. Cash coming in less cash coming
out -and that’s your net cash.
• Accrual basis: used by most accountants around the world. You recognize revenues and
expenses when they actually occur, not when the cash comes in or goes out.
• Tax basis: the ‘tax return’, booking different depreciation methods, expenses not deductible –
the goal is to minimize tax liability – so you choose methods, and follow the tax law to report
the minimum of income in each year.
Good Accounting Starts with Great Systems
Without proper accounting, you can’t figure out your cash runway, budget for another salary, or
provide your investors with the proper financials. And if you are seeking fundraising, you’ll need clear
financials so that potential investors can make informed decisions about investing in your company.
Although founders don’t need to know in detail the mechanics of a startup, because it’s just not worth
the founder’s time, it’s important to know the basics:
COLLEGE OF ENGINEERING 1
Bookkeeping: it’s important to understand that bookkeeping and accounting are not the same thing.
Bookkeeping is the process of tracking all financial records, like income and expenses.
While accounting is about interpreting those financial records and making sure you pay the right
amount of taxes or make strategic business decisions based on your business’s numbers.
Chart of accounts: it is effectively your account listing, it’s all the different buckets that you’re going
to classify the accounts into (income, expenses, assets and liabilities).
Trial balance: it’s the chart of accounts with actual amounts assigned to each account at a specific
point in time.
General Ledger: the general ledger is a basic document where a bookkeeper records the amounts from
sales and expenses. The recording act is referred to as ‘posting entries’ to the ledger.
Maintaining a general ledger is one of the main components of bookkeeping, others are:
• Categorizing expenses
• Recording financial transactions
• Posting debits and credits – making journal entries in the proper place
• Producing invoices
• Maintaining other historical accounts
• Completing payroll
Accountant: Accounting turns the information from the ledger into the financial statements that reveal
the bigger picture of the business. Business owners will often rely on accountants to help with strategic
tax planning, financial analysis & forecasting, and actual tax filing.
The process of accounting provides reports that bring key financial indicators together, and includes:
• Reviewing the bookkeeper’s work
• Preparing adjusting entries
• Preparing financial statements and other reports
• Preparing other reports that bring key financial indicators together
• Prepare your tax filings – income tax returns
• Aiding the company management with analysis of the impact of financial decisions
Financial Statements: Accounting numbers are summarized into three main financial statements: the
balance sheet, income statement and cash flow statement.
The balance sheet basically summarizes a company’s net worth, at any single point in time. There is
only one equation in accounting: Assets = Liabilities + Equity.
The income statement, or the profit and loss statement, describes the company’s financial
performance for any current year: whether they created value or they destroyed it. The “bottom line”
as its known (since net income is the last line item on the income statement) is a single “yes/no” answer
to whether you succeeded or not.
An important line item in the income statement is the gross profit figure. Gross profit indicates the
intake per each product sold, without factoring selling and other support costs.
The cash flow statement shows a firm’s cash transactions, and how much cash was
generated/disbursed from various activities: operations, investments, and financing. Since the income
statement does not indicate how much cash a firm makes during a period in time, the cash flow
statement is constructed to indicate the cash related balances for the fiscal year.
Payroll
The main thing about payroll is, if you hire an employee, you need to calculate payroll correctly – not
just randomly pay them an amount. It’s recommended to hire a payroll company if you have more
than a couple of employees, or if you don’t think you will make payroll payments timely, because the
company you hire will make sure to process things on time.
The bottom line
Not having a strong finance team is like flying an airplane with no windows and no navigation system
–you are in the air but not knowing exactly where you’re going. And this applies to companies at any
stage in their life cycle.
Running a company is very much about following the rules, so try to keep things simple. Do all the
standard stuff to help you and others better measure progress, keep things very organized, and at any
time, know your financial metrics like the back of your hand – such as cash position, burn rate, and
when cash will run out.
Organized financial records and proper balanced finances, coupled with smart financial strategy and
accurate tax filing, will contribute directly to the long-term success of your business. Whichever option
you choose, investing into your business financials will only help your business grow.
B. Financial Projections for Ventures
What Are Financial Projections?
A financial projection is what your business expects to happen, based off hypothetical situations using
the facts and data you have available. A financial projection is often prepared to present a course of
action for evaluation. It’s a type of pro forma statement. Some examples of pro forma financial
statements include projected income statements, balance sheets and cash flow statements.
Projections are based on financial modeling techniques and provide the answers to questions that may
come from lenders, investors or other business stakeholders. Essentially, these statements are an
answer to the questions, “If we lend you this money, what will you do with it? And how will you pay
it back?”
Why Are Financial Projections So Important for Startups and Small Businesses?
Financial projections help you see when you may have financing needs and the best times to make
capital expenditures. They help you monitor cash flow, change pricing or alter production plans.
Projections provide all the minutia that lenders might be looking for to better understand your business:
how it obtains revenue and where it spends money. Additionally, if your business is ever the target of
an acquisition, the financial statements help potential buyers evaluate its worth.
There are subtle differences between the terms projection and forecast. But both describe predictions
of future financial performance using financial models. A financial forecast presents predicted
outcomes based on the conditions you expect to exist for your business. Projections are financial
statements that present an expected financial position given one or more hypothetical assumptions.
For example, Linda’s Linens is growing its sales volume 10% each year, and that growth has been
steady for the last 18 months. After examining the financial forecast, it’s reasonable for Linda to
assume that growth will continue, and she should plan accordingly. This helps her with inventory
planning, hiring decisions and how much to allocate for marketing.
Linda is considering opening a second location. So she prepares a financial projection to show her
bank a “what if” scenario to see how much growth she might expect if she received a loan to open
another store on the other side of town. The hypothetical situation of opening a new location in the
financial projection is what makes it different from the sustained growth she might reasonably suspect
in the financial forecast.
What Are Financial Projections Used For?
Financial projections help you realize possible potential in your business. What might happen if you
receive outside funding? Or purchase additional equipment? This is where you get to be creative and
explore what the future of your business might look like.
Business Plan: Financial projections and business plans go hand-in-hand. It’s a way to show that your
company is stable and is financially successful. It’s a good practice to provide quarterly or monthly
projections for the first year and annual projections for the four years after that. These include
projected income statements, balance sheets, cash flow statements and budgets for capital
expenditures. You should be able to explain projections and match them to funding.
Investors: Your potential investors want to know if the business will make money and when they can
expect a return on their investment. Some common benchmarks to watch for include how long it will
take until the company turns a profit, sales in years three and five, and data showing how your numbers
fit in context of your industry.
Loans and Lines of Credit: These are the most common sources of external funding for small
businesses. To secure a Small Business Association (SBA) loan, you’ll need a thorough understanding
of your finances so you can show the lender how your funds will be used and when the loan will be
paid back.
Know your Business: Financial projections show discipline in financial management – and better
financial management leads to a much higher chance of business success. By using a financial model
to make financial projections, you can see if, when and whether your business will make a profit.
You’ll have a better understanding of your cash position to make better decisions about when to hire
more people, buy more inventory or make capital investments.
7 Steps to Building a Financial Projection for Your Startup or Small Business
Financial projections will usually have a detailed view in a spreadsheet, as well as a summary of some
of the most important information. To create this, your business will need a financial model, or a
summary of your company’s expenses and earnings. Some of the basic areas to start building financial
projections include:
1. Create a sales forecast.

What’s driving your sales? That’s where you should start with your projections. For example, if you
have a subscription-based web business, correlate sales with estimated website traffic, and conversion
rates with the source of traffic. Like a project management platform that sees 1.5% of its traffic from
organic Google searches turn into paying customers. The same project management company should
also identify conversion rates for customers who land on the site from ads. That way they can estimate
how many new customers an increased ad spend or increased organic searches might attract. And
finally, the platform should track their churn rate, or how many customers don’t renew their
subscription.
For a business that sells physical products, the sales forecast should estimate the number of units it
will sell and the price per unit. It’s also helpful to see where and how the items are being sold: How
many stores are carrying the products? How are each of those stores performing? The company should
factor in things that might affect sales like seasonality. For example, more ice cream and sunscreen
are sold in the summer. Is there a seasonality to your product?
2. Create an expense budget.

Expenses will include the costs associated with sales, as well as operating expenses. To forecast cost
of sales or cost of goods sold (COGS), take all of the current information on the income statement
about product cost, fulfillment expense, customer service and merchant fees. Express assumptions
about how that will change as a percentage of revenue. Apply the same idea to operating expenses.
Consider how headcount, salaries and benefits as well as expenses like advertising, rent and more will
change and express everything (with the exception of headcount) as a percentage.
3. Create the income statement projection.

Link those assumptions to formulas built in the income statement. The financial model will forecast
revenue, net revenue, COGS, gross profit, gross margin, operating expense, operating profit and
operating margin. The output of the financial model is the projected income statement.
4. Create the cash flow projection.

The projected income statement shows you, as well as potential lenders and investors, if the company
is profitable and/or when it is expected to make a profit. The cash flow projection shows your cash
position and provides a more detailed view of monthly inflows and outflows of cash for a specific
period of time — 3 months, 6 months, 12 months, etc.
5. Create the balance sheet projection.

Where the cash flow projection lets you see when there should be cash influxes and dips, the balance
sheet shows or projects the worth of your company at any given time. Cash flow projections appear
on your balance sheet as assets. On the liabilities side of the balance sheet, you’ll list things like
accounts payable and debt.
6. Use projections for planning.
Projections are important when seeking new funding. And they help you know when to make capital
expenditures. For planning, projections help with analyzing the impact of different business strategies.
For example, what if you charge a higher or lower price? What if you’re able to collect invoices faster?
Running and testing these various numbers shows how such decisions could affect finances.
Projected financial statements also help you prepare for best and worst case scenarios. You can use
projected financial statements to drill down to the product level and know when it will be profitable,
when to ramp up production or even when it no longer makes business sense to continue producing it.
7. Monitor.
By comparing projections against actual results you can see if you’re on target or need to adjust to
reach them. Consider purchasing accounting and planning software for financial projections. Tracking
performance is much easier and quicker with dashboards and charts that can show you at-a-glance
information.
Benefits of Using Accounting and Planning Software for Financial Projections
There are advantages to automating financial modeling. You can handle more complex datasets and
certain visualization capabilities, as well as streamline financial projections.
All lines of businesses are connected to the same data, improving control, visibility and trust
in the numbers.
Drill-through capability means you can spend more time drilling into the data to understand
the source of the numbers. Finance then has more time to understand the "why" and can better
help the business owners understand how their decisions affect the rest of the company.
You can easily run what-if-scenario analysis to explore different business opportunities.
Pre-built reports and dashboards make it easy to compare projected vs. actual results.
Automation can increase accuracy save time, and help you compare actual and forecasted results in
charts and dashboards. With so much potential, automation is a growing trend. In fact, a survey by
Robert Half, a global human resources consulting firm, found that nearly one quarter of respondents
expect to automate processes behind financial forecasting.
But even if the analytics associated with financial projection aren’t automated, using technology to
automate other parts of the accounting process that go into building the static financial statements
provide savings in terms of speed and accuracy.
C. Legal Structure of Ventures
Choosing the right legal structure for your business starts with analyzing your company’s goals and
considering local, state and federal laws. By defining your goals, you can pick the legal structure that
best fits your company’s culture. As your business grows, you can change your legal structure to meet
your business's new needs.
What Legal Structure Is Best for Your Business?
One of the first decisions you’ll need to make when you start a business is to determine the correct
legal structure for your company.
But how do you decide which business legal structure is right for your company?
You will need professional legal guidance to make this decision, but the first step is learning what the
different structures are, depending on your situation, your long-term goals, and your preferences.
4 Types of Legal Structures for Business:
The four most common business legal structures with considerations for each below, including tax,
liability, and formation of each.
1. Sole Proprietorship
A type of business entity that is owned and run by one individual – there is
no legal distinction between the owner and the business. Sole
Proprietorships are the most common form of legal structure for small
businesses.
Taxation: A sole Proprietorship has pass-through taxation. The business

itself does not file a tax return. Instead, the income (or loss) passes through
and is reported on the owner’s personal tax return.
Liability: The Owner of the sole proprietorship has unlimited personal liability for any liabilities the
business incurs. You can mitigate this risk with insurance and sound contracts.
Formation: The sole proprietorship is the simplest way of doing business. The costs to create a sole
proprietorship are very low and very little formality is required.
Pros of a Sole Proprietorship:

• Easy and fairly cheap to establish.
• Owner has absolute control over the business.
Cons of a Sole Proprietorship:

• Owner has unlimited personal exposure to risk, as the owner is responsible for all liabilities
incurred by the business.
• Investors typically would not invest in a business organized as a sole proprietorship.
2. General Partnership
An association between two or more people in business seeking a profit.

Partnerships can be created with little formality, but because more than one
person is involved, a partnership agreement should be created. A partnership
agreement stipulates the terms of the partnership by formalizing rules for
profit/loss sharing, ownership percentages, dissolution terms, and
management rights among many other things.
Taxation: A partnership is a tax-reporting entity, not a tax paying entity. A

partnership must file an annual information return with the BIR to report
income and losses from operations, but it does not pay federal income tax. Profits and Losses are
passed through to the owners based on their profit sharing percentages outlined in the Partnership
Agreement. Each partner pays taxes on their share of the profit/loss.
Liability: Owners typically have unlimited personal liability. Each partner is jointly liable for the
partnerships obligations.
Formation: Usually easy to create, but it is important to have an attorney create the partnership
agreement. Partnership agreements establish the terms of the partnership and typically cover topics
such as:
• Capital Contributions
• Distributions of profits/losses
• Management Responsibilities
• Bookkeeping
• Banking
• Dissolution
Pros of General Partnerships:

• Fairly easy to create and maintain.
• Profits and losses are passed through to the owner’s personal tax returns.
Cons of General Partnerships:

• Partners are personally liable for business debt and liabilities.
• Can lead to management and oversight issues absent a partnership agreement.
3. Limited Liability Company (LLC)
A hybrid between a corporation, general partnership, and sole

proprietorship. Owners of an LLC are called members. Members may
include individuals, corporations, other LLCs and foreign entities. Most
states permit an LLC with only one owner, called a “single member LLC.”
Taxation: An LLC is considered a “pass through entity” for tax purposes.

This means, business income passes through the business to LLC members
who report their share of profits or losses on their individual income tax
returns. The LLC entity is only required to file an informational tax return,
similar in character to the general partnership.
Liability: LLC members are protected from personal liability for business debts and claims, a feature
known as “limited liability.” If a business with limited liability owes money or faces a lawsuit, only
the assets of the business itself are at risk. Creditors can’t reach personal assets of the LLC members,
except in cases of fraud or illegality. LLC members should exercise caution so that they don’t “pierce
the corporate veil,” which would expose members to personal liability. For example, LLC owners
should not use a personal checking account for business purposes, and should always use the LLC
business name (rather than owner’s individual names) when working with customers.
Formation: To form an LLC, you must pay a filing fee and must have articles of organization when
at the time the entity is established. Operating agreements are highly recommended, but not required
by all states. Much like a partnership agreement or corporate bylaws, the LLC operating agreement
sets out rules for ownership and operation of business. A standard operating agreement includes:
• Ownership interest for each member
• Member rights and responsibilities
• Member voting power
• Profit & Loss allocation
• Management Structure
• Buy-Sell provision
Pros of LLC Structure:

• Owners have limited liability, meaning that the entity is responsible for all liabilities the company
incurs.
• Profits and losses of company are passed on to the member and are only taxed at the individual level.
• Allows an unlimited number of members
Cons of LLC Structure:

• Often subject to additional taxes at the state level.
• Each member’s share of profit represents taxable income, even if the profit wasn’t distributed.
4. Corporations (C-Corp and S-Corp)
Corporations are the most complex business structure. A corporation is a

legal entity that is separate and independent from the people who own or
run the corporation, namely shareholders. A corporation has the ability to
enter into contracts separate from that of the shareholders, but it also has
certain responsibilities such as the payment of taxes. Corporations are
generally more appropriate for larger established companies with multiple
employees or when other factors apply (i.e. corporation sells a product or
provides a service that could expose the business to sizable liability).
Ownership is designated by issuing shares of stock.
The two types of corporations are C-Corps and S-Corps. The major difference among the two types
of corporations is the tax treatment of the two entities:
Taxation (C-Corp): For federal income tax purposes, a C-Corp is recognized as a separate taxpaying
entity, thus the entity files its own tax return. A c-corporation is subject to corporate income tax on
any corporate profits (entity pays taxes). Shareholders pay personal income tax on the corporate profits
distributed by the corporation to the owners. As a result, C-corps are subject to “double taxation.”
Taxation (S-Corp): S-Corps elect to pass corporate income, losses, deductions and credit through to
their shareholders for federal tax purposes. However, the entity is required to report income, losses,
gains, deductions, credit, etc. Shareholders of S corporations report the corporation’s income and
losses on their personal tax returns pay federal income tax at their individual tax rates. Thus, S- Corps
avoid double taxation.
Liability: A corporation is a legal entity that is “immortal,” meaning it does not terminate upon the
shareholders death. Corporation shareholders have limited liability as they are not personally liable
for debts and obligations incurred by the company. Shareholders cannot lose more money than the
amount they invested in the corporation. Similar to the provisions of an LLC, shareholders should be
careful not to “pierce the corporate veil.” Personal checking accounts should not be used for business
purposes, and the corporate name should always be used when interacting with customers.
Formation: Corporations are more complex entities to create, have more legal and accounting
requirements and are more complex to operate than sole proprietorships, partnerships, or LLCs. One
of the major disadvantages of a corporation is the high level of governance and oversight by the board
of directors. Often times, this prolongs the decision making when multiple shareholders or investors
are involved.
Pros of Corporations:
• Corporate shareholders have limited liability, meaning the entity is responsible for all liabilities the
company incurs.
• Usually a favorable formation for investors.
Cons of Corporations:
• The process to establish the business is more rigorous and costly.
• Earnings are subject to “double taxation”, meaning that earnings are taxed at the entity level and the
individual level upon distribution to shareholders.
• High level of governance and oversight by the board of directors.
Topic Outcome:
- Explore and apply project management principles and methods
PROJECT MANAGEMENT
Principles may be defined as core fundamental concepts. Principles of project management are the
basic rules that should be followed to manage projects successfully.
Project managers have to follow the principles of project management, irrespective of the sector they
work in, their style of working, and the peculiarities of a particular project. Though some finer points
differ, basic project management principles remain the same. A project may face many challenges,
and the only way to solve them and complete the project successfully is to familiarize yourself with
project management principles and techniques.
Before we proceed to learn about the different project management principles, let us go through some
elementary prerequisites for the successful completion of a project.
• People involved in the project should understand that all should work towards the same project-
related goals.
• Project team members should possess appropriate project management skills and experience.
• All team members should work to achieve project deliverables.
In a project environment, all project management principles and techniques should be deployed to
achieve the project goals and objectives, no matter what the constraints are. Project management
principles help a project manager determine the timelines, the scope of the project, and the budget.
Project Management Principles and Techniques
1. Focus on Products
Project managers will no doubt have to concentrate on the key product or outcome of a project.
However, this can be done only with a clear project plan, budget, and schedule.
During the implementation of a project, there may be additional requests from stakeholders, but project
management principles demand that a project manager keeps an eye on the impact it will have on the
project schedule/budget.
More often than not, clarity on the project emerges from the Work Breakdown Structure (WBS) — a
holistic view of the plan which shows all the tasks and sub-tasks a project encompasses. It helps to
identify the work and processes involved to execute the project. It may be used by the team to develop
the project schedule, resource requirements, and costs.
Putting the WBS in place may be considered a valuable tool used in skillful project delivery. It
provides all the necessary mechanisms to maintain the scope of the project without losing sight of the
final result. The concept of work breakdown structure can be used where the project deliverables are
less tangible as well.
2. Vision and Mission
Any project should have a clear vision and mission. A vision is a broad encompassing idea for the
future and is imbued with some spirit of achievement; it gives team members a reason to contribute
while unifying and inspiring them.
A vision statement is the written form of the vision of a project. It outlines what the project is setting
out to achieve and spells out criteria.
On the other hand, a mission statement says what the fundamental purpose of the organization is.
Focused on the present, it defines the customer and the critical processes and sets the level of
performance for each team member.
It is a project management principle to have both a vision and a mission, as one does not work without
the other.
3. Business Objectives and Goals
Projects will only succeed if they have clear goals and objectives. Setting project goals and objectives
is an essential project management principle as they help you identify a destination and layout a road-
map to get there. Having poorly defined goals and objectives will lead to missed milestones and
dissatisfied clients. Clearly defined goals and objectives will drive positive results.
Many use the terms goals and objectives as synonyms. To ensure the successful completion of a
project, it is important to differentiate the two. Goals define broader aspirations while objectives are
the specific steps needed to reach the goals. It is important to ensure that both goals and objectives are
specific, measurable, achievable, realistic, and time-bound.
4. Standards of Engagement
Another important project management principle is to establish clear standards of engagement. This
means putting in place the rules to be followed during the project implementation. For instance, who
are the members of the project team? How often will meetings be held? Who will take notes and
distribute minutes of the meeting?
Project managers should refrain from planning things alone as it leads to disengagement. It is true the
project manager has to oversee the planning, but all team members should be involved, and the
approach should be collaborative.
5. Budgeting
Project management principles and techniques dictate that a project should always stay within the
budget. Every project must have a specific budget allocation. To utilize the budget judiciously, project
managers should keep continuous track of the project expenditure.
The budget of a project covers supplies, materials, and equipment, operating costs and team members.
The reason why the project budget plan is detailed is it provides a clear understanding of what is to be
accomplished by the project. When a project leader submits a complete budget document to the
management, it helps them decide whether the project is worth investing in.
Planning the budget does not happen overnight. It calls for a close look at project requirements and
coordination with vendors, management, and service providers. The larger the project, the more time
you need for budget planning as more resources are involved and the risks are higher.
6. Scheduling and Estimation
A challenging aspect of project planning is to come up with realistic estimations that support business
objectives and satisfy client expectations. Delivering those results within the agreed schedule, quality,
and cost constraint is most challenging.
Project scheduling and cost estimation are thus important project management principles that need to
be followed. The project schedule tells you how long it will take project managers to complete the
project and includes an estimate of costs and detailing of resources.
The project management schedule also emphasizes the completion of activities within the budget.
Planning and scheduling to budget estimates help to sharpen focus on deliverables and helps team
members to execute their work. At times, there may be a need to change the schedule due to a shift in
priorities.
7. Elucidating Roles and Responsibilities
Individuals working on a project should have well-defined roles and responsibilities. Besides, they
should know who they must report to and the responsibilities they hold. Stakeholders in a project
should know what they are supposed to do –the roles of a project manager, a project team member,
project supervisor, and a project sponsor are very different and unless demarcated, there will be chaos
within the organization. All those associated with a project should react pro-actively in a critical
situation rather than wait for the other to respond.
At an organization level, roles and responsibilities can be divided into four categories:
1. Program Management level

2. Project Board level
3. Project Manager level
4. Team level
It is essential to identify stakeholders, clients, and their interests at the initial stage. The project board
should draft the roles and responsibilities to make sure there are no overlaps. At times, individuals
may take on more than one role and at times a particular part may be dropped.
8. Business Justification
Every project should prove itself worthy of investment. There is a need to understand the benefits
offered by a specific project as against the risks it entails. Simply put, there is a need to make a business
case or to justify why the project is being undertaken.
The estimated cost of development and implementation is weighed against the business benefits likely
to accrue. Though this exercise is undertaken under labels like project charter, project brief or project
plan, it is not just the project costs, but the changes it will bring to the business that is considered.
If a holistic treatment is not given, there may be a misallocation of resources and missed timelines.
9. Organizational Alignment
The success and sustainability of the process brought in by a project will have a direct impact on
individuals involved in the project. Organizational alignment can be accomplished through regular
communication during meetings via e-learning, email, and training.
Most strategic goals and results include an overall view of the organization. Organizational alignment
is very much essential as the company can identify the interdependencies that exist.
Recognizing work done at the individual and at the group level impacts other groups or individuals,
and this is the key to achieving organizational alignment.
10. Learning From Experience
In the current technology-driven world, organizations move to implement project management

practices to increase efficiency and productivity at the workplace. But there is one thing they
consistently forget, i.e. learning from previous mistakes.
Projects are distinctively risky, but taking a consistent approach to learning from previous mistakes
will help to reduce risks. This learning methodology can be assimilated into the project management
methodology. This is an important project management principle that applies to the entire team. The
team must be capable of analyzing what went wrong while working on previous projects and learn to
use the lessons picked up, in any new or upcoming project.
11. Project Sponsor
Project sponsors and managers work hand-in-hand. Though a project sponsor is just one level above
a manager, project managers do not get an opportunity to choose the sponsor they would like to work
with. Project sponsors are on the scene even before managers are assigned to the project. Project
sponsors do not get involved in the day to day operations, but handle the business end by providing
resources and promoting the project.
If the sponsor of a project does not understand the roles and responsibilities he is expected to fulfill,
the project manager must ensure he does.
Employing an active project sponsor will help to overcome many hitches in a project –loss of crucial
resources, escalation of issues, and guidance to stakeholders to make appropriate decisions.
12. Manage by Exception
Being a project manager is a tough task; you will have to divide your attention among various things.
You will have to juggle many responsibilities. To get the things done in a systematic way and keep
employees motivated, an excellent ploy to employ is to manage by exception.
Managing by exception means to focus on those things that seem to deviate from the normal. Instead
of following every aspect of a project in minute detail, a skilled project manager will look for
deviations in financial and operations areas of business.
13. Manage by Stages
The entire project should be broken down into different stages so that it becomes easy for the project
manager to take critical decisions on how to proceed. The main goal should be to complete one phase
after the other in smooth succession.
Projects which have long gestation periods and lengthy stages may not see the involvement of senior
management at every step; however projects with short stages may see management wield more
control over the project. Significant projects are broken down into smaller phases to ensure success.
Such projects also have a detailed stage-level plan and a high-level project plan.
14. Customizable to Suit the Project Environment
Devising project management framework or methodologies implies having a thorough understanding

of project requirements. It is a fundamental project management principle that project managers should
follow a method that suits the project environment they operate in and the quantum of work involved.
15. Measurement and Accountability
Last but not least is the question, how is success determined in project completion? Preparing a simple
project scorecard is visually appealing to keep everyone updated and engaged; it also helps to hold
teams, leaders, and employees accountable for refinement, implementation, and sustainability of the
project.
In a nutshell, the project management principles and techniques discussed above can be universally
applied irrespective of language, culture, and geographic location. These project management
principles are in existence for years. Follow them, and you will have higher chances of succeeding in
the project management field.
Topic Outcome:
- Illustrate marketing and sales strategy to be applied for the venture idea
MARKETING AND SALES
Before starting your business, it's important to outline all the details in a business plan. Creating the
plan not only forces you take a good look at all aspects of your business, from financial, to target
market, and more, but also, it becomes the roadmap for your success.
One of the most important sections of a business plan is Marketing and Sales Strategies, which outlines
your plan for reaching and selling to your target market. While you want to have a wonderful product
or provide stellar service, it's all for nothing if you don't have customers and clients. Your marketing
plan is the key to effectively and affordably finding your buyers, making it a crucial section that lenders
and investors review before giving you startup money.
Marketing and Sales strategy planning is the heart of business planning. Startups need to have a low
cost or zero cost-marketing efforts, initially, to promote their products/services. Well-planned
marketing and sales activities is imperative for the success of the venture.
What to Include in the Marketing & Sales Strategies Section
The basics of the marketing and sales section have to do with knowing your market and competition,
and designing your product messaging, pricing, and other marketing strategies to maximize sales. It
involves the 5 P’s of marketing, as well as figuring out how you'll measure your marketing mix’s
success.
Here are the 5 P’s of marketing:
• Product – Describe the product or service offered to the customer by your home business,
including the physical attributes of your products or services, what they do, how they differ
from your competitors and what benefits they provide to your potential customers.
• Price – Outline your pricing strategies that will help you reach your target profit margin. How
you will price your product or service so that the price remains competitive while still allowing
you to make a good profit? When calculating price, make sure you take into consideration both
fixed expenses (those that don't change) and variable expenses (costs that aren't set), as well as
your time and expertise, to insure you're charging enough to make a profit. Also discuss if your
price will be lower or higher than your competition, and how you can justify the difference
(i.e. what do buyers get by paying more for your product?).
• Place (Distribution) – Indicate where your business will sell its products or services, and how
it will get those products or services to consumers. For example, will you sell online? Will you
consign your products into local stores? When you know what outlets our product and services
will be available, indicate how much you expect to sell in each location. For example, will 65
percent of your sales be done online and 35 percent through face-to-face appointments? Also
include any delivery terms and costs, and how those expenses will be covered (i.e. added to
the sale of the item). Indicate if there any shipping or labeling requirements that need to be
considered and how you will meet those requirements. Finally, outline the transaction process
and your return policies.
• Promotion – What methods of promotion you will use to communicate the features and
benefits of your products or services to your target customers? Will you advertise? If so,
where? What percentage of advertising will be handled by each advertising option? How much
business do you anticipate each form of advertising will result in? How much is this all going
to cost? Also indicate if you plan to offer coupons or other incentives to get customers in the
door.
• People – Decide your sales strategy and the people who will provide sales and service that will
be used in marketing your products or services to the customer. Who are the people or sales
team that will be providing this service, and what kind of sales training will they receive? Do
you plan to offer any incentives to your customer service representatives and how do you plan
to measure customer satisfaction?
Important Considerations in Sales and Marketing Venture Idea
1. Sell the benefit, not a comparison.

How you market yourself is all about highlighting what makes you different. There are three major
ways to do that.
• Cost (you know how to price a product better than the competition)
• Quality (you’re better)
• A combination thereof (you offer the better value)
2. Listen to your customer.

The customer may at times defy logic, but they are always right. Listen to them.
3. Market your product before it’s ready.

It’s better to do preemptive awareness campaigning, even if it’s minimal, to let potential customers
know your product is coming. You can sell the benefit before the product has arrived. This way, when
the product is ready, so are customers.
4. Think outside the box.

Utilize a bevy of free, online marketing techniques that are both creative and effective. For example,
you can use online video marketing, social media, blog influencers, crowdsourcing, competitions,
content marketing, thought leadership, and more.
5.Test fast. Fail fast.

If you’re going to commit time and money to a marketing campaign, make sure you can measure the
results. Set up ways to track conversions that stem from each marketing campaign. Also, run multiple
types of marketing campaigns in distinct, small batches. This will allow you to compare marketing
channels and see which perform best. Toss out the ones that don’t work and keep those that do.
6. Advertise from multiple angles.

As mentioned above, it’s good to test multiple marketing channels and ideas to see what works best.
Often, it’s not any one thing but a combination of all of the above. When your customer hears you on
the radio, sees you in a search engine result, and then finds you mentioned in a blog they like (content
marketing), they start to accept your brand as a solid, dependable, known entity. They may not have
the need for your product or service immediately, but when they do, it will be your name that comes
to mind instead of a competitor’s.
7. It’s always time for PR.

When you do traditional advertising, it’s your marketing material selling your product. When you do
PR, or have a member of the press or a media house that covers your industry talk about you, it’s brand
building and endorsement. Even little PR wins, like local news or blogs, add up. And, unlike most
traditional marketing, PR endures far beyond the dates of the advertising campaign. Good PR can do
a lot for your credibility and brand awareness.
8. Give customers a place to talk to/about you.

Good or bad, you want to know what your customers are saying. If you don’t provide your customers
with a place to complain or praise you, it makes it look like their thoughts and opinions don’t matter.
Remember, even if a customer comes to you and is furious, that’s a great opportunity for you to
publicly show how willing you are to right a wrong, or make a customer feel valued -- which is PR
gold.
9. We look forward to seeing you again.

Reward loyalty or interest.
Go-To-Market (GTM) Strategies
A go-to-market (GTM) strategy is a step-by-step plan created to successfully launch a product to

market. A good GTM strategy generally identifies a target audience, includes a marketing plan, and
outlines a sales strategy. While each product and market will be different, a GTM strategy should
identify a market problem and position the product as a solution.
In simpler terms, a GTM strategy is the way in which a company brings a product to market. It’s a
handy roadmap that measures the viability of a solution's success and predicts its performance based
on market research, prior examples, and competitive data.
It's also worth noting that go-to-market strategies aren't exclusive to physical products. You can create
a GTM plan for a new service, a new branch of your company, or even an entirely new business.
Why do you need a go-to-market strategy?
Even the brightest ideas can fail when they're not executed effectively — it’s a well-known fact that
90% of startups burn out, often within their first year.
Creating a go-to-market plan can prevent many of the mistakes and oversights that can tank new
product launches. Poor product-market fit and oversaturation can dampen a launch — even if the
product is well-designed and innovative.
While a go-to-market strategy isn't guaranteed to prevent failure, it can help you manage expectations
and work out any kinks before you invest in bringing a product to market.
What's the purpose of a go-to-market strategy?
When effectively executed, the GTM strategy will align all stakeholders and establish a timeline to
ensure each stakeholder meets the defined milestones and outcomes, creating an attainable path to
market success.
Overall, go-to-market strategies are used to create the following benefits within an organization:
• A clearly defined plan and direction for all stakeholders.
• Reduced time to market for products and services.
• Increased chances of a successful product or service launch.
• Decreased likelihood of extra costs generated by failed product or service launches.
• Enhanced ability to react to changes and customer desires.
• Improved management of challenges.
• An established path for growth.
• Ensured creation of an effective customer experience.
• Guaranteed regulatory compliance.
While go-to-market strategies are often associated with product launches, they can also be used to
describe the specific steps a company needs to take in order to guide customer interactions for
established products.
To create an effective GTM strategy, organizations must possess an understanding of the work
environment and the target market. New and existing workflows should be clearly defined and a
system should be established to manage the GTM strategy.
Core components
A go-to-market strategy often includes five core components:

1. Market definition: Which markets will be targeted to sell the product or service?
2. Customers: Who is the target audience within these markets?
3. Distribution model: How will the product or service be delivered to the customer?
4. Product messaging and positioning: What is being sold and what is its unique value or
primary difference when compared to other products or services in the market?
5. Price: How much should the product or service cost for each customer group?
The market definition identifies the specific markets -- or groups of people that have the ability and
willingness to pay -- for a specific product or service. The markets should be specific and clearly
defined, but they should also involve a large enough audience to meet the income and profit objectives
of the product or service. If multiple markets are being targeted, then one should be prioritized over
the others and this primary target should be clearly communicated.
The customers component takes the information and research gathered to define the market and uses
it to increase specificity and determine the target audience for the product or service. The company
will need to decide whether it has existing customers that might be sales prospects or whether it needs
to seek an entirely new set of target customers. The company developing a GTM strategy and
improving its customer acquisition process should also focus on who the buyer will be. For example,
in a business-to-business(B2B) GTM strategy, the buyer could be the IT manager, a line-of-business
(LOB) manager or a member of the C-suite.
The distribution model component defines the channels or the paths taken by the product or service
to reach the end customer. Indirect channels often become a part of a product vendor's go-to-market
plan. An indirect channel of distribution involves the product passing through extra steps between the
manufacturer and the customer. For example, a product in an indirect channel may pass from the
manufacturer to a distributor and then the wholesaler before it reaches the retail store.
Some questions to ask when defining channels include:
• How will customers go about buying the product or service?
• How and where will the product or service be distributed?
• If it's a physical product that will be distributed in a store, how will it get there?
• If it's a software product, how will the customer download it?
• Is the product or service on the organization's e-commerce site or is it sold online through a
third party?
The product messaging and positioning component involves defining what the product or service is,
what it does, how the target client will be made aware of the product and how leads will be generated,
from both the current customer base and within the defined markets. The product message should
answer how the offer addresses a specific need within the market and why customers should believe
that it fulfills the need.
The final component, price, should not be based on the costs of manufacturing or developing the
product or service. Instead, the price should support the value proposition and market position of the
product or service.
References:
https://www.thebalancesmb.com/writing-a-business-plan-1794231
https://blog.hubspot.com/sales/gtm-strategy
https://searchitchannel.techtarget.com/definition/go-to-market-strategy-GTM-strategy
Learning Objectives
After completing this module, students will be able to:
1. Define the business model.
2. Compare and contrast business model from business plan.
3. Explore the different types of revenue models and give examples for each type.
4. Identify the nine components of the business model canvas.
5. Develop the business model canvas of the venture idea.
BUSINESS MODEL
What is a Business Model?
Understanding the problem you are solving for your customers is undoubtedly the biggest challenge
you’ll face when you’re starting a business. Customers need to want what you are selling and your
product needs to solve a real problem.
But, ensuring that your product fits the needs of the market is only one part of starting a successful
business. The other key ingredient is figuring out how you’re going to make money. This is where
your business model comes into play.
A business model describes the rationale of how an organization creates, delivers, and captures value.
It should answer important questions about your business and set out a strong vision for the
business. The key components of a business model should include relating to your target customers,
the market, organization strengths and challenges, essential elements of the product, and how it will
be sold.
At its core, your business model is a description of how your business makes money. It is an
explanation of how you deliver value to your customers at an appropriate cost. As you can see, a
business model is simply an exploration of what costs and expenses you have and how much you can
charge for your product or service. A successful business model just needs to collect more money from
customers than it costs to make the product. This is your profit—as simple as that.
In their simplest forms, business models can be broken into four components:
1. business offering
2. customers
3. infrastructure
4. financial viability
New business models can refine and improve any of these four components. Maybe you can lower
costs during design and manufacturing. Or, perhaps you can find more effective methods of marketing
and sales. Or, maybe you can figure out an innovative way for customers to pay.
Because there are so many types of businesses out there, business models are constantly changing —
there is no one-size-fits-all model that can be applied to every business.
Difference Between Business Plan and Business Model
If you aspire to be an entrepreneur, that means you already have some ideas in mind. Knowing what
the difference is between a business model and a business plan is going to help you. Each has its own
use, so understanding them is important.
Any successful business owner will have to do some business planning. There are a lot of benefits to
doing this, and the more organized you get, the better it is going to be for you. In the digital era, you
don’t have to do it on paper – you can do it much more efficiently using IdeaBuddy, for example, but
the better you understand the essence, the higher chance for building a successful plan you have.
The business model is the foundation of a company, while the business plan is the structure. So, a
business model is the main idea of the business together with the description of how it is working.
The business plan goes into detail to show how this idea could work. A business model can also be
considered the mechanism that a company has in order to generate profits. At the same time, the
business plan also does its part being the way a company can present its strategy. It is also used to
show the financial performance that is expected for the near future.
Comparing how business models and business plans work to help you in different ways is important.
A business model can help you be sure that the company is making money. It helps to identify services
that customers value. It also shows the reciprocation of funds for the activity that a business renders
to its customers.
Any business can have different ways of generating income, but the goals of the business model should
aim to simplify the money process. It does this by focusing on the large income generators.
So, we now understood that a basic business model is a gateway to show how an organization is
functioning. A business plan is a document that shows the strategy of an organization together with
the expected performance details.
We can find the details of a company when we check its business plan. What it does is offer more info
about the business model. It does this by explaining teams needed to meet the demand of the business
model. It explains the equipment needed, as well as resources that need to be obtained in order to start
creating. Explaining the marketing steps, and how the business is going to attract and retain more
customers over the competition, will be part of a model.
Another interesting thing when it comes to comparing business models and business plans is that they
cannot function without each other. Just remember this, the business model is going to be the center
of the business plan.
Different Kinds of Revenue Models
You don’t have to invent an entirely new business model to start a business. The vast majority of
businesses use existing business models and refine them to find a competitive edge. Here’s a list of
business models or revenue models you can use to start your own business. Try to adopt these business
models in your startup.
1. Franchise model
Best for the company’s expansion, franchising allows the franchisor to license its resources, brand
name. Intellectual property and rights for a franchise to sell its products and services in exchange for
a royalty. McDonald's is the best example that has 93% of its franchised restaurants worldwide.
Example: Subway, McDonald’s, Gold’s Gym
2. Multi-sided platform model

Any company that offers services to both sides of business carries out a multi- sided business model.
The perfect example is LinkedIn, which provides subscription services to people to find job
opportunities as well as to HR managers to find candidates for their vacancies.
Example: LinkedIn, Freelancer.com
3. Cash machine business model

Also known as the cash conversion cycle (CCC). It means how quickly a company converts cash to
goods and services and then again into cash. This model is used by the companies who make low-
profit margin but survive in the market with a disruptive position. Like, Amazon generates a massive
amount of cash from its online store before it pays to its suppliers. Another way to look is that Amazon
runs its supply chain on vendor credit.
Cash Conversion Cycle: Cash ==> Product & Services ==> Cash
Example: Amazon, Alibaba, Apple
Pro tip: This type of business model is most suitable for inventory type of businesses.
4. Freemium business model

A mix of free and paid services, the freemium model is mostly used by tech companies in the Software
as a Service (SaaS) or apps business model. To grow business and acquire customers, companies offer
free (lite) versions to customers but for a limited time or with limited features. To unlock the upgraded
features, the customer has to opt for paid services.
Examples: Zoom, Dropbox, MailChimp, Evernote, etc.
Pro tip: It’s an excellent way to encourage customers to try the software or application.
5. Subscription business model

This model allows the customer to get services by paying a fixed amount every month or year. In this
case, the company has to provide enough value to its customer, so they visit the website over and over
again.
Examples: Netflix, LinkedIn, Amazon Prime, Dollar Shave Club, are few of its examples.
Pro Tip: This model is useful for content or service-based websites.
6. Peer-to-peer business model

As per this model, a company acts as a middleman between two individual parties and creates value
for both demand and supply side. It’s different than a typical relationship of a business selling its
services to consumers (B2B or B2C). It makes money through commissions. Airbnb is the right
example that allows transactions between hosts and hostesses.
Example: Airbnb, Uber, eBay, Offerup, Freelancer.com
7. One-for-one business model

The one-for-one business model can be referred to as a social entrepreneurship business model. It’s a
hybrid solution, a combination of both profit and not-for-profit services. Although there are some
debates about its long-term sustainability, many companies are pivoting their business models to cater
to socially conscious millennials. The best example is TOMS Shoes that provides shoes to
underprivileged children globally for every pair of shoes sold.
Examples: TOMS Shoes, Warby Parker (donated eyeglasses), Two-degree Food, Soapbox Soaps.
8. Hidden revenue business model

This model refers to a revenue generation system in which users don’t have to pay for the services
offered, but the company still earns revenue streams from other sources. Like, Google earns from
advertising money spent by businesses to bid on keywords while users don’t pay for the search engine.
Examples: Google, Facebook, Instagram, Twitter
9. Razor and blade business model

In this model, one item (Razor) is sold at a low price while another associated item (blade) is sold at a
premium price. It is also known as a printer and cartridge business model. For example, the price of
an inkjet printer itself was just a one-time expense, however, getting a new ink cartridge replaced is
an ongoing expense for consumers. The model is great if you have a loyal customer base and if you
can create some sort of lock- in situation with customers.
Example: Xbox or PlayStation Video Games, HP Printers, Nespresso coffee machines, AT&T
Mobile phones with a 2-year contract.
Pro tip: Use this model, if there is a need for recurring sales of an associated item, which can
generate a continuous flow of revenue.
10. Reverse Razor and Blade business model

The business model is contrary to the razor blade model. It implies offering low priced products to
encourage customers to buy high priced items as well.
Example: Apple’s App Store and iTunes sell apps, movies, songs, etc. at reasonable rates but
charges premium prices on its devices like iPhone, iPad, and Mac.
11. Direct sales business model

In this model, products are directly sold to the end customers either in a one-on- one conversation or
small gathering, remember Tupperware house parties? The salesperson gets a share of every sale.
Although technology has superseded the direct sales method in many ways, still many companies
prefer to give a personal touch to its customers.
Examples: Tupperware, personal care & nutrition brands (Avon, Arbonne, and Herbalife)
12. Affiliate marketing business model

In this model, companies make money by featuring, reviewing, and recommending other company’s
products or services. Think about product review websites. These websites are paid based on sales
opportunities that they bring to their vendor companies.
Examples: NerdWallet, Capterra, MoneySavingExpert.com, and thewirecutter.
13. Consulting business model

Companies that provide consulting services by hiring experienced and qualified people and having
them assigned on client’s projects follow the consulting business model. These companies tend to
charge on the hourly basis and/or they take a percentage share based on the successful completion of
the project (cost reduction project). Mckinsey and Boston Consulting Group are multi-billion-dollar
businesses that are based on this model.
Examples: Deloitte, Mckinsey, BCG, software or website development firms
Pro tip: if you are a subject matter expert (SME) in a field, and when the duration of the project is
uncertain (based on the change in client’s requirements) then consulting business model is an excellent
way to charge your clients.
14. Agency-based business model

This is a project-based business model, where an outside firm is hired to complete a specific task.
Traditionally, businesses that lack internal expertise hire agencies to get a customizable solution for
their needs. Remember Mad Men? Acclaimed Netflix series that focuses on advertising agencies and
their clients. Some niche agencies are digital marketing, design & architecture, survey, promotion,
media, public relationship, branding, website development, social media, etc.
Example: TBWA\Media Arts lab (Apple’s go-to ad agency), Leo Burnett Company (United
Airlines, McDonald’s, Kellogg’s are some of their notable clients)
15. User-generated content business model

Allowing users to generate quality content on websites for free to answer other users’ questions and
provide reviews, this business model is new yet fast-growing.
Examples: The top examples are Youtube, Quora, Yelp, Yahoo Answers, Reddit.
16. Online educational business model

Targeting the educational industry, including students and teachers, this business model allows them
to get access to educational resources via flat course fees or subscription. It can be said as a
combination of freemium, course fees, and a subscription- based model.
Examples: Khan Academy, LinkedIn learning, Coursera, Udemy, edX, etc.
17. Instant news business model

This model focuses on sharing and updating news instantly without any intermediary.
Example: Twitter is the best example.
18. Multi-brand business model

This model is based on marketing more than two products, almost similar yet competing with each
other and come under a single organization but having different brand names. It is done to create
economies of scale and to build an empire.
Examples: Procter & Gamble, Unilever, and Nestle are a few examples.
19. E-Commerce business model

A simple yet most promising business model, e-commerce allows buyers and sellers to connect and
transact using an online platform (online shop).
Example: Amazon, Alibaba, eBay, OLX, Walmart, etc.
20. Distribution based business model

A company that works by having one or a few key distribution channels to integrate with its final
customers follows this model.
Example: Unilever spends its major part of revenue in maintaining a proper distribution.
21. Drop-shipping business model

A cost-effective as well as an exciting business model. In drop-shipping, a business owner contacts
many different suppliers/ wholesalers to sell their product on the website. Once an order is placed on
a business owner’s website, the wholesaler drop- ships the products directly from the manufacturer to
the customer. In this case, the business owner does not have to hold any inventory and uses the third
party to manage all the shipping and logistics needs.
Pro tip: It’s an excellent way to start a niche e-commerce business website with a limited upfront
cost.
Examples: Doba, Oberlo, Dropship Direct, and Wholesale 2B are few examples.
22. Enterprise business model

Targeting and focusing only on large clients, the enterprise business model is all based on getting big
deals. It is built on complex sales with a good few potential clients. Like the clients of Fortune 500
usually have multi-billion dollar budgets.
23. Social enterprise business model

This model is based on the fundamental that companies should make profits without causing any harm
to anyone, and a part of it should be spent in humanitarian works to improve human living conditions.
Example: Brunello Cucinelli is an Italian luxury brand that donates about 20% of its profits
towards a social cause.
24. Direct-to-consumers business model

This model allows companies or brands to sell their products to final customers directly. Highly
effective marketing campaigns and advertising activities are required to retain customers.
Example: Unilever is the best example while being one of the world’s largest advertisers.
25. Family-owned business model

Any business that is run by a family, and its decision-making processes are controlled by two or more
family members is a family-owned business.
Examples: Ford, Walmart, Estee Lauder, Prada, Comcast are few examples.
26. Blockchain-based business models

The most advanced, futuristic, and modern technology of Blockchain has changed the entire landscape
of transactions, involving decentralized network systems on a global scale. Many crypto-currencies
like Bitcoin, Ethereum, and Litecoin use Blockchain technology-based business model.
27. Vertically integrated supply chain business model

This model is about owning and managing the supply chain activities (manufacture, distribution, and
retail) for its products by the company itself. When a company has better control over how a product
is produced and delivered to end users, it can provide products at lower prices (with better margin) to
consumers.
On the contrary, for example, if a company only manufactures a product, and uses a distribution and
retail partner. Then at every step of the supply chain, the additional cost is added (markup) by the time
the product reaches the end customer.
Examples: Think about companies having both factories and retail/online stores. Amazon, Tesla,
Luxottica, Apple, Walmart, and other grocery stores.
28. Combination of chains and franchise business model

This model is simply a mix of operated chains and licensed stores (franchising). Starbucks is the most
famous example that owns both company-operated stores and licensed stores.
29. Data licensing business model
A business model of ‘data’ has gained a new meaning in this modern world, especially in the
technology sector. Data is a critical component in web technology where companies require critical
information to carry out operations and earn revenue.
Example: Twitter sells real-time data to its partners, which is then used for advertising and
customer insight.
30. Attention merchant business model

Attention merchants or influencers operate through advertising models and make money by grabbing
the attention of their target audience.
Examples: Snapchat & Instagram allows brands to market themselves through advertising on their
platform.
31. Discount with high-quality business model

This kind of business model is usually practiced by supermarkets and departmental stores that get
products in bulk and sell on the wholesale rate.
Examples: discounted products with high quality like ALDI, Tesco, Lidl, Ross Stores, and ASDA
Stores.
32. Pyramid Scheme Business model

A pyramid scheme is a business model often considered illegal or controversial. The model functions
on the sole principal of recruiting members by promising them a reward in the shape of payments or
services if they agree to enroll others into the scheme, rather than supplying investments or sale of
products.
As the recruiting circle grows with infinite speed, the actual recruitment becomes quickly impossible,
which leaves members without any profit.
Example: Amway is a billion-dollar company which has used these pyramid schemes.
33. Nickel and Dime business Model

This business model consists of the lowest price strategy for the basic product or service. By keeping
the basic price as low as possible, an additional amount is charged for the other perks and services that
are offered with the main basic service.
Example: Spirit and Frontier Airlines are a budget airline that charges the lowest possible price
for the flight tickets and charges fee over additional services like printed boarding pass fees, carry-on/
check-in luggage, seat preference, priority boarding, Wi-Fi, beverage, meal/snack, phone booking
fees, etc.
34. Aggregator Business Model

Aggregator Business Model is a network model which provides collective information about a
particular service and sells them under their brand name. Under this business model, most companies
provide information and sources on a single industry.
Example: Companies like Zillow and Oyo for Hotels, Uber for taxi service, Yodlee for financial
service, all use the Aggregator business model.
35. API licensing Business Model

API stands for application programming interface (API). It is basically a set of subroutine definitions,
communication setups, and tools for developing software. API licensing business model provides
licensing protocols which allow developers’ community to create third-party plugin/add-on apps for
well-known platforms. And developers pay a fee to get API access.
Example: Microsoft, Apple, LinkedIn, and Twitter, they all provide API license services.
36. Crowd Source Business Model

Crowdsource business Model facilitates companies with access to operational solutions like ideas and
technologies, upgraded consumer interaction, opportunities for co-collaboration, operation
optimization, and reduced costs.
Example: Companies like Wikipedia, YouTube, Kickstarter, LEGO ideas, Unilever, Coca Cola
(new flavor of beverage) are involved in crowdsourcing.
37. High Touch Business Model

In the high-touch business model, customers’ interaction and involvement are on the highest level to
make the experience personalized. It is a phenomenon in which a customer gets involved in a kind of
partnership with the business. High touch is needed for larger accounts because they pay more and are
sticky.
Example: Buying a car at Auto dealership, house, enterprise SaaS requires multiple interactions
with the salesperson.
38. Low Touch Business Model

Low touch business model is, of course, the opposite of high touch business model where the product
or service is delivered by minimum customer interaction. Low touch is good for low price software
tools where acquiring customers is easier.
Example: Companies like Amazon, Zendesk, SurveyMonkey uses low touch business model.
39. Flex Pricing Business Model

Flexible pricing model operates through a business strategy in the final price of an item is negotiable.
In short, buyers and sellers can bargain the price to suit their purpose the best.
Example: Letgo
40. Auction-Based Business Models

The model is based on the bidding option to buy a product or service. The model is although not very
common now, it is still used for industries like antiques, real estate, collectibles, and the sales of
businesses.
The modern version of the auction model can be witnessed on online platforms trade’s new and used
items like eBay and Amazon
41. Reverse Auction Business Model

This business model follows a strict pattern of setting the highest prices and let the buyers bid
accordingly until the prices start to drop.
Example: Bidding for government contracts
42. Brokerage Business Model

Brokerage business model provides a single platform to buyers and sellers for communicating the
deals. It charges a fee for any transaction between the parties either from the buyer or the seller
depending on the featured category.
Example: Expedia, Century 21
43. Bundling Business Model
Bundling is a business strategy that combines products or services to offer a package gathered as a
single combined unit to sell at a comparatively low price. It is the form of convenient purchasing for
several products and services from a single business unit.
Example: Microsoft Office 365 (PowerPoint, Excel, Word, OneNote, Outlook) Value meal at
Burger King or McDonald’s, Printer and ink
44. Disintermediation Model

Disintermediation Model removes the capacity of outsourcing or a third-party intermediary. In fact,
the organizations following this model deal with the clients and customers directly via different
channels like the internet.
Example: Dell, Tesla are good examples of companies which follow a disintermediation model.
45. Fractionalization business model

Fractionalization model is selling a product or service for partial usage or separate parts. It’s a strategy
which divides products and services into further subcategories to introduce variety in the products,
charging for each category separately.
Example: You can sell a pizza by the box or individual slices of different varieties( cheese/
pepperoni)
Another best example of this business model is timeshares, where a group of people owns only a
portion of a vacation home, enabling them to use it for a certain number of weeks every year.
Examples: Disney Vacation Club, NetJets
46. Pay as Go (Utility) Business Model

The business model charges as per the usage of the product or service.
Example: This model includes electricity, water, and cell phone companies and Amazon Web
Services
47. Product as a service

Product as a service means to sell the service of a product rather than selling the actual product.
Example: Zipcar, Fedex Printing service follows the product as a service business model.
48. Standardization business model

Standardization means to make a service universal, which was once a customized one. This attracts
customers due to convenience and low prices.
Example: MinuteClinics (a subsidiary of CVS health) is a good example of Standardization.
49. User Base Communities

User base communities earn by developing an interactive platform where users communicate on their
own with each other and can advertise at the same time. The model generates revenue with both
subscription and advertising fee.
Example: Craigslist, Angie’s list
50. Leasing business model

Leasing refers to renting large or high-profile items like machines and electronic equipment instead of
them selling it.
Example: Home Depot (Tool rental) MachineryLink, Hertz, Enterprise, etc. have adopted a similar
business model.
51. Advertising
The advertising business model has been around a long time and has become more sophisticated as
the world has transitioned from print to online. The fundamentals of the model revolve around creating
content that people want to read or watch and then displaying advertising to your readers or viewers.
In an advertising business model, you have to satisfy two customer groups: your readers or viewers,
and your advertisers. Your readers may or may not be paying you, but your advertisers certainly are.
An advertising business model is sometimes combined with a crowdsourcing model where you get
your content for free from users instead of paying content creators to develop content.
Examples: CBS, The New York Times, YouTube
52. Concierge /customization

Some businesses take existing products or services and add a custom element to the transaction that
makes every sale unique for the given customer. For example, think of custom travel agents who book
trips and experiences for wealthy clients. You can also find customization happening at a larger scale
with products like Nike’s custom sneakers.
Examples: NIKEiD, Journy
This is by no means an exhaustive list of all business models that exist—but, hopefully, it gets you
thinking about how you might structure your business.The key thing to remember is that you don’t
need to invent a new business model when you’re starting your business. Using existing models can
help lead you to success because the model has been proven to work. You’ll be innovating in smaller
ways within that existing business model to grow your business.
The Business Model Canvass
The business model canvas — as opposed to the traditional, intricate business plan — helps
organizations conduct structured, tangible, and strategic conversations around new businesses or
existing ones. Leading global companies like GE, P&G, and Nestlé use the canvas to manage strategy
or create new growth engines, while start-ups use it in their search for the right business model. The
canvas’s main objective is to help companies move beyond product-centric thinking and towards
business model thinking.
Business Model Canvas is a lean startup template for developing new or documenting existing
business models. 1It is a visual chart with elements describing the four major aspects of a business;
customers, offer, infrastructure, as well as financial viability.
The Business Model Canvas categorizes the processes and internal activities of a business into nine
separate categories initially proposed in 2005 by Alexander Osterwalder, each representing a building
block in the creation of the product or service.
The Nine (9) Building Blocks
A business model can best be described through nine basic building blocks that show the logic of
how a company intends to make money. The nine blocks cover the four main areas of a business:
customers, offer, infrastructure, and financial viability. The business model is like a blueprint for a
strategy to be implemented through organizational structures, processes, and systems.
1. Customer Segments (CS)

The Customer Segments Building Block
defines the different groups of people or
organizations an enterprise aims to reach and
serve.
The total customer pie is divided into segments

based on the way your products or services
address a specific need for the segment. The
customer segment is an essential part of your
business model and is key to ensuring that the
product features are aligned with the segments
characteristics and needs.
To carry out an effective customer segmentation, you must first know your customers, both through
their current and future needs. You must list your customers in terms of priority, including a list of
potential future customers. Make a thorough assessment of your customers by understanding their
strengths and weaknesses and exploring other kinds of customers who may benefit the company more
if you are to focus on them.
Various customer segments are:
Mass Market: An organization opting for this type of customer segment gives itself a wide pool of
potential customers because it feels that its product is a relevant need amongst the general population.
A potential product for such an organization could be Flour.
Niche Market: This customer segment is based on highly specific needs and unique traits of its clients.
An example of an organization with a niche customer segment is Louis Vitton
Segmented: Organizations adopting the segmented approach create further segmentation in their main
customer segment based on slight variations in the customer’s demographics and resultantly, their
needs.
Diversify: An organization with a Diversified Market Segment is flexible in the iterations of its product
or service tweaking it to suit the needs of segments with dissimilar needs or traits.
Multi-Sided Platform/ Market: This kind of segment serves customers who have a relationship to each
other, i.e. blogging sites need a large group of active bloggers to attract advertisers. And they need
advertisers to create cash flow. Hence, only by creating a pull with both segments will the blogging
site be able to have a successful business model
2. Value Propositions (VP)
The Value Propositions Building Block

describes the bundle of products and
services that create value for a specific
Customer Segment.
Value propositions can be divided into

two categories:
Quantitative: this stresses the price or

efficiency of the product or service
Qualitative: this value proposition highlights the experience and results the product and its use
The value proposition provides value through a number of attributes such as customization,
performance, “getting the job done”, brand/ status, design, newness, price, cost and risk reduction,
accessibility, as well as convenience/ usability.
When creating your product’s value proposition, the first question an entrepreneur must ask himself
is, what problem he is solving through his offered product or service. Then one needs to look into how
the product, service or overall experience can be improved so that it provides greater value than the
competition. Finally, it is imperative to identify the core value that your business provides. One way
to identify this value is for an owner to specify what he/ she wants customers to remember about their
interaction with the company.
3. Channels (CH)
The Channels Building Block

describes how a company
communicates with and reaches its
Customer Segments to deliver a
Value Proposition.
The medium through which an

organization provides its value
proposition to its customer segment is
known as a channel. There are various
options for channels available to an organization, and the selection is based on the channel that is the
quickest, most efficient with the least amount of investment required. There are two basic kinds of
channels; Company owned channels such as store fronts or Partner Channels such as Distributors. A
company can opt to choose either one or employ a combination.
For an entrepreneur, the first step in dealing with channels is to identify the customer channels. Touch
points with customers can be limited or diverse depending on company strategy. Then he/ she needs
to evaluate the strength of the channel by conducting an SWOT analysis on the channel. Finally, the
company can identify and build new customer channels.
4. Customer Relationships (CR)
The Customer Relationships Building

Block describes the types of
relationships a company establishes
with specific Customer Segments.
An organization must select the kind of

relationship it will have with its customer
segment in order to create financial
success and sustainability. Customer
Relationships can be categorized as
follows;
Personal Assistance: In this kind of relationship the company interacts with the customer directly
through an employee who provides the human touch by assisting the customer presale, during the sale
and even may provide after sales services.
Dedicated Personal Assistance: This kind of relationship is characterized by a very close interaction
between the customer and the company through a dedicated representative who is assigned a set of
clients and is personally responsible for the entire experience the customer has with the company.
Self-Service: Self-Service places the onus of the customer experience on the tools the company
provides for the customer to serve him or herself.
Automated Services: These are customized self-service relationships where the historical preference
of the customer is taken into account to improve the overall experience.
Communities: In today’s electronic age creating communities of clients allows organizations to

communicate with them directly. This allows for an enhanced client experience because the
community allows clients to share their experiences and come up with common challenges and
solutions.
Co-creation: The customer has a direct hand in the form the company’s product or service will take.
For an entrepreneur, the priority is to identify the type of relationship he/ she has with the customer.
Then the value of the customer must be evaluated in terms of the frequency of his expenditure on the
firms product and services. Loyal customers are relationships that the company should aim to invest
in as they will yield steady revenue throughout the year.
5. Revenue Streams (RS)
The Revenue Streams Building Block

represents the cash a company generates from
each Customer Segment (costs must be
subtracted from revenues to create earnings).
A revenue stream is the methodology a company

follows to get its customer segments to buy its
product or service. A revenue stream can be
created through the following ways;
Asset Sale: the company sells the right of

ownership over the good to the customer.
Usage Fee: the company charges the customer for the use of its product or service.
Subscription Fee: the company charges the customer for the regular and consistent use of its product
or service.
Lending/ Leasing/ Renting: the customer pays to get exclusive access to the product for a time-bound
period.
Licensing: the company charges for the use of its intellectual property.
Brokerage Fees: companies or individuals that act as an intermediary between two parties charge a
brokerage fee for their services.
Advertising: a company charges for others to advertise their products using their mediums.
When setting up revenue streams, it is important to recognize that an effective price for the product
and/or service will be arrived at through the process of elimination. Different iterations of prices should
be listed and evaluated. It is important, in the end to take a break ad to reflect on possible avenues
open to you as a business.
6. Key Resources (KR)
The Key Resources Building Block

describes the most important assets
required to make a business model work
These are the assets of the organization

fundamental to how it provides value to its
customers. Resources can be categorized as
human, financial, physical and intellectual.
For an entrepreneur, it is important to begin with listing your resources. This gives you a clear idea of
what final product or service your company needs to create for the customer and which resources are
dispensable, resulting in cost savings for your company. Once the final list of resources is available,
the company can decide on how much it needs to invest in these key resources to operate a sustainable
business.
7. Key Activities (KA)
The Key Activities Building Block

describes the most important things
a company must do
to make its business model work
Activities that are key to producing the

company’s value proposition. An
entrepreneur must start by listing the
key activities relevant to his/her
business. These activities are the most
important processes that need to occur
for the business model to be effective.
Key activities will coincide with revenue streams. Now it is important to evaluate which activities are
key by adding or removing some and evaluating their impact.
8. Key Partnerships (KP)
The Key Partnerships Building

Block describes the network of
suppliers and partners that make
the business model work.
To create efficient, streamlined

operations and reduce risks
associated with any business model,
an organization forms partnerships
with its high-quality suppliers. Key
partnerships are the network of suppliers and partners who complement each other in helping the
company create its value proposition. Partnerships can be categorized as follows;
Strategic alliance between competitors (also known as coopetition),

Joint ventures and Relationships between buyers and suppliers.
An entrepreneur must begin by identifying its key partners followed by making future partnership
plans. This can be done through an evaluation of the partnership relationship to judge which
characteristics of the relationship need improvement and what kind of future partnerships will be
required.
9. Cost Structure (CS)
The Cost Structure describes all

costs incurred to operate a
business model
This defines the cost of running a

business according to a particular
model. Businesses can either be
cost driven i.e. focused on
minimizing investment into the
business or value driven i.e. focused
on providing maximum value to the customer.
Following are some traits of common cost structures;

Fixed Costs: costs that remain the same over a period of time
Variable Costs: as the name suggests, these costs vary according to a variance in production
The first step for an entrepreneur is to obviously identify all costs associated with the business. A
realistic understanding of the costs of the business is one of the hallmarks of a good business model.
After identification, it is important to list all the costs on the canvas, so they are visually present and
then create plans for each cost. Some costs may be decreased through certain measures while others
may go up if you decide that an investment in a particular section will result in future gains.
The nine business model Building Blocks form the basis for a handy tool, which we call
the Business Model Canvas.
This tool resembles a painter’s canvas—preformatted with the nine blocks—which allows you to paint
pictures of new or existing business models. The Business Model Canvas works best when printed
out on a large surface so groups of people can jointly start sketching and discussing business model
elements with Post-it® notes or board markers. It is a hands-on tool that fosters understanding,
discussion, creativity, and analysis.
Below is an example of a Business Model Canvass
Why Use the Business Model Canvas?
The following are the reasons why your team must use a business model canvas:
Visual Thinking: The tool allows for easy, visual representation for decision makers to ponder upon.
The tool provides a neat breakdown of the major considerations impacting the business and also makes
clear the direction the organization is taking through its business model.
Iterate Quickly: If a poster sized of the canvas printout is taken, it can be used in combination with
sticky notes for executives to evaluate current and potential tweaks in the business model and their
impact.
Grasp the relationship between the 9 blocks: The Business Model Canvas allows the executive team
to understand how the 9 building blocks relate to each other and the different ways these relationships
can be changed to increase efficiency or effectiveness. An opportunity or innovation can be spotted
through the use of this tool.
Short and Succinct: The tool encourages teams to keep their suggestions short and simple enough to
fit on post-it notes.
Easy to circulate: The tool allows easy access and shareability. Pictures of the completed canvas or
simply physically passing it around so people can grasp its gist as well as add to it, if need be, make
the Canvas a very portable and convenient tool.
Topic Outcome
- Design and build a prototype and identify different prototyping techniques.
PROTOTYPING TECHNIQUES
What Is Prototyping?
Before you can determine whether your business needs to develop a prototype, you have to know what
prototyping is. One of the essential early steps in the inventing process is creating a prototype - which,
simply defined, is a three-dimensional version of your vision. But what exactly should a prototype
look like? First, it depends on your idea. Second, it depends on your budget and your goals.
In general, prototyping is simply the creation of a functional version of your product that can be used
in real-world scenarios that invite reviews, tests, and feedback before you officially introduce your
product to the market.
Prototypes come in all shapes and sizes in almost every kind of industry. Companies that create
everything from tech gadgets to hair products to musical instruments to baked goods can develop a
prototype that is then evaluated by a person or group who either represent the ideal customer or have
an expertise in the product’s industry.
A product prototype is an example of a product you intend to manufacture on a much larger scale.
Compared to mass production, prototyping has a high cost per individual unit. However, because you
are only manufacturing a small number of prototypes, your overall costs are significantly lower than
they’d be if you ordered hundreds or thousands of units of your new product.
A working prototype may differ from the final product. This could be due to cost or supply limitations,
or it could be because your product idea is still evolving. It’s quite common for brainstorming to lead
to a rapid prototyping process, which in turn gives way to a longer design process in which the product
design may significantly change.
Why Create a Prototype?
Remember, prototypes don’t have to be made by you directly. If your business venture involves a
product that requires more technical know-how or industry-specific expertise, it’s not uncommon to
hire a product engineer or someone with more experience under their belt to help you craft the
preliminary version of your product.
As long as your product maker is equitably compensated and credited, the benefits of building the
prototype will set you on the right path of where you want your business to go thanks to the following
reasons.
1. A prototype will help you understand the user experience. When you have a physical
product in hand, you can comprehend the prototype design in a way that isn’t possible if it’s
just a theoretical idea written out in an inventor’s journal.
2. You Create Visual Representation and Scalability: Prototypes not only give you a great
visual representation of your final product to determine everything you want it to do, but it also
allows you to fine-tune and scale your idea once you’ve seen it brought to life.
A lot of inventions and business products that seem well thought out in our imagination become
more cumbersome and difficult to wield once a prototype is created. However, this isn’t a
drawback to prototyping, but a boon. Once you’ve created a prototype, you can see where the
kinks are in your product and address them.
For that reason, prototyping can be an iterative process, where you work to keep improving on
it until you feel it is ready to present to a potential investor or your client base.
3. A prototype facilitates market research. When you present a potential consumer with a
visual prototype or place a physical object in their hands, you can use their reactions to glean
information about your target audience.
4. Investors Want to See the Effort: With that in mind, a prototype of your company’s product
is also a major advantage when approaching capital investors or a lending institution. A
working model of your product or one that illustrates your ultimate goal will encourage
financial resources to take you more seriously than an entrepreneur who approaches them with
just a clever idea.
A prototype shows potential lenders that your product has been reviewed extensively and
possible causes for product failure has been minimized, therefore painting your company as a
sound investment.
5. A prototype improves your final design. Remember that your prototype is just a passing
stage in the overall production process. To reach the next level of success, you’ll need to
identify flaws in the prototype, and put in some hard work to remedy those flaws.
6. Prototypes Spark New Ideas: The process of building a prototype has the unintentional
benefit of also igniting other ideas in your mind that can help jumpstart your business or
determine your next entrepreneurial venture. Something about the creative process often opens
the mind to ways to improve functionality, reconsider an outstanding issue, or anticipate
customer feedback.
In prototyping, you have the possibility of walking away with not only a product that can take
your business to the next level but also with solutions to problems that previously left you
unsure if your company could succeed even with a great prototype in tow.
How to Make a Prototype
Prototyping is a two-pronged process: When you make your first prototype, it’s about bringing your
idea into the world to see if it can actually be made. Then, as you progress in the prototyping process,
it’s about examining the strengths and weaknesses of your product by comparing it to what else is out
there. Here are some key tips for building the first prototype of an invention:
1. Enlist an intellectual property lawyer. Sometimes marketed as a patent attorney, an

intellectual property lawyer can advise you on the existence of similar products (although
anyone with a computer can do a patent search). Beyond patenting, a lawyer can help you in
many early-stage tasks, whether that’s learning about applicable regulations or connecting with
potential investors.
2. Have any collaborator sign a non-disclosure agreement. Few people go through the full
prototype development process without some help. Whether you’re developing a physical
prototype, a computer-generated virtual prototype, or a paper prototype, you want to make sure
that your intellectual property remains safe. Your lawyer can help you draft an NDA for any
collaborator.
3. Look for cost-effective ways to render a prototype. The advent of 3D printing has helped
enormously in this regard. While owning your own 3D printer may be cost-prohibitive, many
of today’s design firms can provide computer-aided design and a 3D model of your invention,
which can serve as a comparatively low cost prototype.
4. Outsource to keep costs low. Although many American inventors would prefer to create a
functional prototype using domestic resources, the fact is that many overseas countries are
better equipped with the industrial equipment and manufacturing know-how that’s needed to
efficiently manufacture basic prototypes.
5. Guard your intellectual property. Be aware that some factories may not be respectful of your
design patents, so choose your partners wisely.
Advantages of making a prototype:
1. It enables you to test and refine the functionality of your design. Sure, your idea works perfectly
in theory. It's not until you start physically creating it that you'll encounter flaws in your thinking.
That's why another great reason to develop a prototype is to test the functionality of your idea. You'll
never know the design issues and challenges until you begin actually taking your idea from theory to
reality.
2. It makes it possible to test the performance of various materials. For example, your heart may
be set on using metal--until you test it and realize that, say, plastic performs better at a lower cost for
your particular application. The prototype stage will help you determine the best materials.
3. It'll help you describe your product more effectively with your team, including your attorney,
packaging or marketing expert, engineers and potential business partners.
4. It will encourage others to take you more seriously. When you arrive with a prototype in hand to
meet any professional--from your own attorney to a potential licensing company--you separate
yourself from the dozens of others who've approached them with only vague ideas in mind. Instead,
you'll be viewed as a professional with a purpose, as opposed to just an inventor with a potentially
good idea.
How to Test a Prototype: Eight (8) Questions to Ask
Testing prototypes is an integral part of product development. The main reason to test throughout the
development process is to assess whether a good idea will actually work in the real world. When it
comes to clothing and industrial design, function is every bit as important as form. A prototype
designer will seek out real world subjects who can test the working model of a product to assess if it
actually works. A great place to find such real world subjects is from your own social circles. But first
start with yourself.
Try your first few prototypes on yourself. If you wouldn’t buy it and it was your idea in the first place,
who would? If it passes the “would I buy it?” test, great—now step it up. Give it to some trusted
friends and family members to try. At this stage of prototype testing, you’ll be looking for constructive
criticism. Vapid encouragement is nice when you’re feeling down, but when you’re trying to improve
a prototype, don’t welcome it. During the process of user testing, ask your trusted testers the following:
1. What do you like about this product?

2. What are three things you would change about it?
3. Would you use this?
4. When would you use this?
5. Would you recommend it to a friend?
6. Could you see this being your first choice compared to similar products that exist on the
market? Why?
7. Do you see a need for this?
8. What are my product’s three greatest flaws?
Four (4) Ways to Know When Your Prototype Is Ready
From the first prototype to the last, the mockup process is expensive and time-consuming and may
well be the most draining component of the whole invention process—but it’s an exciting time as well.
After extensive usability testing followed by a phase during which you rework usability issues and
rethink your design decisions, you'll finally have a product you're ready to take to market. At the end
of the day, here are the four qualities a prototype will have that prove it’s ready for market:
1. It solves the problem you set out to solve.

2. It gives you the results you’re looking for.
3. It differentiates itself from other similar products on the market.
4. It’s the best option out there.
The success of a product comes down to user experience. If you’ve managed to create a user
experience that cannot be improved on by other products, you may have a product that’s ready for
market.
Prototyping User Experience
Prototyping is an experimental process where design teams implement ideas into tangible forms from
paper to digital. Teams build prototypes of varying degrees of fidelity to capture design concepts and
test on users. With prototypes, they can refine and validate their designs so their brand can release the
right products. The main goal is to test the design solution and quickly get feedback from the customers
before developing the final product.
According to Smith (2019), prototyping is an integral part of the design process for two key reasons:
1. Visualization—Prototypes help UX designers show stakeholders how the final product would
look and function.
2. Feedback—Prototypes generate feedback from team members as well as test groups of users.
Potential customers can interact with a near-final product and highlight areas that are less than
user friendly. The design team can then iterate the design before the product team rolls out the
final product, saving the company both time and money.
Low-Fidelity vs. High-Fidelity Prototyping
Fidelity, in prototyping context, refers to the amount of details and functionality present in the
prototype. Depending on what stage of customer development and resources available, they can decide
what prototype to develop. For example, if the team needs to validate if the idea would be interesting
for the target customer, a low-fidelity prototype is recommended. But if the team wants to test the
functionalities or the overall experience of using the product, a high-fidelity prototype is needed.
Low-fidelity Prototype
The best example of a low-fidelity prototype are Paper prototypes. In contrast with sketching that is
free-form, paper prototypes have more defined structure and sometimes interactive. Although this type
of prototype is cheap, fast and easily modified, users might have a hard time giving feedback because
of its lack of realism.
High-Fidelity Prototype
High-fidelity prototypes, on the other hand, are prototypes that are created using prototyping platforms
like Marvel App. These prototypes are very close to the final product: interactive and aesthetically
friendly. Although this type of prototype is very engaging for the customers, it can be costly for the
developer to make changes.
So now that you know that creating a prototype is a vital step in your invention process, how exactly
do you move forward and actually do it? This stage in the inventing process is possibly the period of
greatest learning. This is where your words and thoughts change from "Can I?" to "How will I?"
Making a prototype by hand is a great way to start bringing your product to life. Remember, there are
no rules! Give yourself permission to experiment. Look around the house and select materials that you
can use to test to see if your idea works.
Once you've developed your prototype as far as you reasonably can, it's time to consider hiring a
professional to help you with the next steps. There are many avenues you can take at this stage. You
may wish to hire professional prototype developers, engineers and designers, but others may be able
to help you as well, including a handyman, a machinist or a student from a local industrial design
college. The complexity and materials to be used in your specific product will help drive this decision.
Your budget may also be a consideration--a handyman or machinist, for example, will probably charge
much less per hour than an engineer, and their services may be perfectly sufficient if your design is
relatively straightforward.
References:
https://www.entrepreneur.com/encyclopedia/prototype
https://www.thebalancesmb.com/why-you-should-create-a-prototype-for-your-small-business-
4173059
https://www.masterclass.com/articles/how-to-make-and-test-a-prototype#what-is-a-product-
prototype
Topic Outcome
- Explain the purpose of a competitor analysis
- Describe the environments of a company through the identification and analysis
of the strengths and challenges of the organization, and the opportunities and
threats to which it is exposed.
COMPETITOR ANALYSIS AND SWOT ANALYSIS
I. Competitor Analysis
Competitor analysis begins with identifying present as well as potential competitors. Organizations
must operate within a competitive industry environment. They do not exist in vacuum. Analyzing
organization’s competitors helps an organization to discover its weaknesses, to identify opportunities
for and threats to the organization from the industrial environment. While formulating an
organization’s strategy, managers must consider the strategies of organization’s competitors.
Also, a competitor analysis is the process of identifying businesses in your market that offer similar
products or services to yours and evaluating them based on a set of predetermined business criteria. A
good competitor analysis will help you see your business and competitors through your customers'
eyes to pinpoint where you can improve.
Furthermore, competitor analysis is a driver of an organization’s strategy and effects on how firms act
or react in their sectors. The organization does a competitor analysis to measure / assess its standing
amongst the competitors.
However, a well-thought competitor analysis permits an organization to concentrate on those

organizations with which it will be in direct competition, and it is especially important when an
organization faces a few potential competitors.
Why is a competitor analysis important?
It is important to conduct routine competitor analyses throughout the lifecycle of your business to stay
up to date with market trends and product offerings. A competitor analysis can reveal pertinent
information about market saturation, business opportunities and industry best practices.
It is also important to know how your customers view you in comparison to your competition. A
competitor analysis will give you a better idea of what services are currently available to your target
customer and what areas are being neglected.
"In some cases, you may find that you are at a competitive disadvantage, in which case you may need
to make a change in order to maintain your sales volumes," said Josh Rovner, business consultant and
bestselling author of Unbreak the System. "In other cases, you may notice that you have an advantage
that could enable you to make a change that increases your sales or profit."
A competitor analysis is important for both offense and defense. Comparing your business to your
competition shows you where you can improve as well as where you are excelling. It may even help
you identify a new niche that you can take advantage of.
What are the benefits of conducting a competitor analysis?
Analyzing your business against your competitors can help you in many ways. For example, it will
reveal which areas of your business, product or service need improvement. With this knowledge, you
can adjust your processes to better serve your target market and increase profit. It can also show you
new strategic opportunities to enhance your products or services and grow your business.
"Understanding one's competitors allows one to distinguish oneself from the competition, focus on the
underserved market opportunities, determine the services to offer, identify the best practices to
employ, and isolate the worst practices and rotten players," said *Taffet.
Once you conduct a competitor analysis, you can use it for benchmarking and measuring future
growth. Routine analyses will reveal market trends to keep track of and new players to be aware of. It
will also help reveal who your current competitors are throughout every stage of business. Be sure to
keep your analyses up to date.
"Too many businesses do a competitor analysis early on, and then neglect it once their brand is
established," said Colin Schacherbauer, lead content marketer at Investor Deal Room. "Industries are
constantly changing, and each time a new company enters your space, they are doing a competitor
analysis on you. It's important to continually evaluate your competitors."
*David M. M. Taffet - Transformational leader, business executive, and turnaround specialist with over 30 years of
experience building companies, leading teams, raising capital (almost half a billion dollars in total), and developing cross-
sector partnerships for commercial and public gain.
Identifying Competitors
The first step in a competitive analysis is to determine who the competition is. This is more difficult
than one might think. For example, take a company such as 1-800-FLOWERS. Primarily, the company
sells flowers. But 1-800-FLOWERS is not only in the flower business; in fact because flowers are
often given for gifts, the company is also in the gift business. If the company sees itself in the gift
business rather than just the flower business, it has a broader set of competitors and opportunities to
consider. In addition, some firms sell products or services that straddle more than one industry. For
example, a company that makes computer software for dentists’ offices operates in both the computer
software industry and the health care industry. Again, a company like this has more potential
competitors but also more opportunities to consider.
The different types of competitors a business will face are shown below. The challenges associated
with each of these groups of competitors are described here:
Direct competitors: These are businesses that offer products identical or similar to those of the firm
completing the analysis. These competitors are the most important because they are going after the
same customers as the new firm. A new firm faces winning over the loyal followers of its major
competitors, which is difficult to do, even when the new firm has a better product.
Indirect competitors: These competitors offer close substitutes to the product the firm completing
the analysis sells. These firms’ products are also important in that they target the same basic need that
is being met by the new firm’s product. For example, when people told Roberto Goizueta, the late
CEO of Coca-Cola, that Coke’s market share was at a maximum, he countered by saying that Coke
accounted for less than 2 percent of the 64 ounces of fluid that the average person drinks each day.
“The enemy is coffee, milk, tea [and] water,” he once said.
Future competitors: These are companies that are not yet direct or indirect competitors but could
move into one of these roles at any time. Firms are always concerned about strong competitors moving
into their markets. For example, think of how the world has changed for Barnes & Noble, Borders and
other brick-and-mortar bookstores since Amazon.com was founded. And, think of how smartphone
technology continues changing the nature of competition for a variety of firms including those selling
entertainment services, telephone services, and the like.
It is impossible for a firm to identify all its direct and indirect competitors, let alone its future
competitors. However, identifying its top 5 to 10 direct competitors and its top 5 to 10 indirect and
future competitors makes it easier for the firm to complete its competitive analysis grid.
If a firm does not have a direct competitor, it shouldn’t forget that the status quo can be the toughest
competitor of all. In general, people are resistant to change and can always keep their money rather
than spend it. A product or service’s utility must rise above its cost, not only in monetary terms but
also in terms of the hassles associated with switching or learning something new, to motivate someone
to buy a new product or service.
Creating meaningful value and sharp differentiation from competitors are actions small firms in
crowded industries can take to remain competitive and gain market share.
What should be included in a competitor analysis?
In a competitor analysis it is important to include as much information as possible to create an accurate

assessment of how your business compares to others. You will need to collect information on potential
competitors and their features, pricing, service quality, strengths, and weaknesses. You can either build
your own competitor analysis or use a competitive analysis template.
From his experience in creating competitor analyses himself, Colin Schacherbauer (lead content
marketer at Investor Deal Room) compiled a list of the top 10 components every competitor analysis
should include:
1. Feature matrix: Find all the features that each direct competitor's product or service has. Keep
this in a competitor insight spreadsheet to visualize how companies stack up against one
another.
2. Market share percentage: This helps to identify who your main competitors in your market
are. Don't exclude larger competitors completely, as they have much to teach about how to
succeed in your industry. Instead, practice the 80/20 rule: 80% direct competitors (companies
with similarly sized market shares) and 20% top competitors.
3. Pricing: Pinpoint how much your competitors charge and where they fall on the quantity vs.
quality spectrum.
4. Marketing: What type of marketing strategy does each competitor employ? Look at
competitors' websites, social media presence, the type of events they sponsor, their SEO
strategies, their taglines and current marketing campaigns.
5. Differentiators: What makes your competitors unique, and what do they advertise as their best
qualities?
6. Strengths: Identify what your competitors are doing well and what works for them. Do
reviews indicate they have a superior product? Do they have high brand awareness?
7. Weaknesses: Identify what each competitor could be doing better. Do they have a weak social
media strategy? Do they lack an online store? Is their website outdated? This information can
give you a competitive advantage.
8. Geography: Look at where your competitors are located and the regions they service. Are they
brick-and-mortar companies, or is the bulk of their business done online?
9. Culture: Evaluate your competitors' objectives, employee satisfaction and company culture.
Are they the type of business that advertises the year it was established, or are they modern
startups? Read employee reviews for insight into company culture.
10. Customer reviews: Analyze your competitors' customer reviews, recording both pros and
cons. In a 5-star system, look at 5-star, 3-star and 1-star reviews. Tip: 3-star reviews are often
the most honest.
Rovner recommends including information in your competitive analysis about related trends in your
market and region. This will give you a more complete picture of the entire competitive landscape.
"Document what threats are out there that could have a negative impact on your business, and
document the opportunities out there that you could take advantage of better than your competitors,"
said Rovner.
What are the steps to writing a competitor analysis?
When you are writing a competitor analysis, it is important to be as objective and honest as possible.
A competitor analysis is a useful tool that can help you improve your business and better serve your
audience, so intentionally understating the strength or success of your competitors will only be doing
yourself a disservice, as it will yield inaccurate results.
This is Rovner's seven-step process for conducting a competitor analysis:
1. Identify the products or services you want to evaluate.
2. Identify every direct and indirect competitor for those products or services.
3. Research all competitors in person (if applicable) and online (to get a sense of their online
presence – or as the sole research method if the product or service is only sold online). Use a
group, if possible, to get a variety of opinions on competitor products or services.
4. Document your research in a written analysis. This can vary depending on the product or
service but often includes comparison charts, graphs and written text. Make sure your
document is substantive and actionable, but not so long that no one will read it.
5. Identify areas to improve your own competitiveness. For example, could you improve the
quality of your products or services by changing a feature, lower the price of your products
or services to be more competitive, or develop a new product or service that addresses the
area for improvement?
6. Make the improvements you deemed appropriate or necessary.
7. Measure your sales and profit based on the changes you made to determine whether they were
successful.
After conducting a competitive analysis, use the information and best practices you've learned from it
to improve your business. Put your newfound knowledge into action to distinguish yourself from your
competition and better serve your customers. Conduct competitive analyses routinely to stay up to
date with market supply and demand and to increase your competitive intelligence.
II. Strength, Weakness, Opportunity, and Threat (SWOT) Analysis
What Is SWOT Analysis?
SWOT (strengths, weaknesses, opportunities, and threats) analysis is a framework used to evaluate a
company’s competitive position and to develop strategic planning. SWOT analysis assesses internal
and external factors, as well as current and future potential.
A SWOT analysis is designed to facilitate a realistic, fact-based, data-driven look at the strengths and
weaknesses of an organization, initiatives, or within its industry. The organization needs to keep the
analysis accurate by avoiding pre-conceived beliefs or gray areas and instead focusing on real-life
contexts. Companies should use it as a guide and not necessarily as a prescription.
How to Do a SWOT Analysis
SWOT analysis is a technique for assessing the performance, competition, risk, and potential of a
business, as well as part of a business such as a product line or division, an industry, or other entity.
Using internal and external data, the technique can guide businesses toward strategies more likely to
be successful, and away from those in which they have been, or are likely to be, less successful.
Independent SWOT analysts, investors, or competitors can also guide them on whether a company,
product line, or industry might be strong or weak and why.
A Visual Overview
Analysts present a SWOT analysis as a square segmented into four quadrants, each dedicated to an
element of SWOT. This visual arrangement provides a quick overview of the company’s position.
Although all the points under a particular heading may not be of equal importance, they all should
represent key insights into the balance of opportunities and threats, advantages and disadvantages, and
so forth.
Strengths
Strengths describe what an organization excels at and what separates it from the competition: a strong
brand, loyal customer base, a strong balance sheet, unique technology, and so on. For example, a hedge
fund may have developed a proprietary trading strategy that returns market-beating results. It must
then decide how to use those results to attract new investors.
Weaknesses
Weaknesses stop an organization from performing at its optimum level. They are areas where the
business needs to improve to remain competitive: a weak brand, higher-than-average turnover, high
levels of debt, an inadequate supply chain, or lack of capital.
Opportunities
Opportunities refer to favorable external factors that could give an organization a competitive
advantage. For example, if a country cuts tariffs, a car manufacturer can export its cars into a new
market, increasing sales and market share.
Threats
Threats refer to factors that have the potential to harm an organization. For example, a drought is a
threat to a wheat-producing company, as it may destroy or reduce the crop yield. Other common threats
include things like rising costs for materials, increasing competition, tight labor supply. and so on.
How to Use a SWOT Analysis
With your SWOT analysis complete, you’re ready to convert it into a real strategy. After all, the
exercise is about producing a strategy that you can work on during the next few months.
The first step is to look at your strengths and figure out how you can use those strengths to take
advantage of your opportunities. Then, look at how your strengths can combat the threats that are in
the market. Use this analysis to produce a list of actions that you can take.
With your action list in hand, look at your company calendar and start placing goals (or milestones)
on it. What do you want to accomplish in each calendar quarter (or month) moving forward?
You’ll also want to do this by analyzing how external opportunities might help you combat your own,
internal weaknesses. Can you also minimize those weaknesses so you can avoid the threats that you
identified?
Again, you’ll have an action list that you’ll want to prioritize and schedule.
Internal
What occurs within the company serves as a great source of information for the strengths and
weaknesses categories of the SWOT analysis. Examples of internal factors include financial and
human resources, tangible and intangible (brand name) assets, and operational efficiencies.
Potential questions to list internal factors are:
• (Strength) What are we doing well?
• (Strength) What is our strongest asset?
• (Weakness) What are our detractors?
• (Weakness) What are our lowest-performing product lines?
External
What happens outside of the company is equally as important to the success of a company as internal
factors. External influences, such as monetary policies, market changes, and access to suppliers, are
categories to pull from to create a list of opportunities and weaknesses.
Potential questions to list external factors are:
• (Opportunity) What trends are evident in the marketplace?
• (Opportunity) What demographics are we not targeting?
• (Threat) How many competitors exist, and what is their market share?
• (Threat) Are there new regulations that potentially could harm our operations or products?
SWOT Analysis Example
In 2015, a Value Line SWOT analysis of The Coca-Cola Company noted strengths such as its globally
famous brand name, vast distribution network, and opportunities in emerging markets. However, it
also noted weaknesses and threats such as foreign currency fluctuations, growing public interest in
"healthy" beverages, and competition from healthy beverage providers.
Its SWOT analysis prompted Value Line to pose some tough questions about Coca-Cola's strategy,
but also to note that the company "will probably remain a top-tier beverage provider" that offered
conservative investors "a reliable source of income and a bit of capital gains exposure."
Five years later, the Value Line SWOT analysis proved effective as Coca-Cola remains the 6th
strongest brand in the world (as it was then). Coca-Cola's shares (traded under ticker symbol KO) have
increased in value by over 60% during the five years after the analysis was completed.
To get a better picture of a SWOT analysis, consider the example of a fictitious organic smoothie
company. To better understand how it competes within the smoothie market and what it can do better,
it conducted a SWOT analysis. Through this analysis, it identified that its strengths were good sourcing
of ingredients, personalized customer service, and a strong relationship with suppliers. Peering within
its operations, it identified a few areas of weakness: little product diversification, high turnover rates,
and outdated equipment.
Examining how the external environment affects its business, it identified opportunities in emerging
technology, untapped demographics, and a culture shift towards healthy living. It also found threats,
such as a winter freeze damaging crops, a global pandemic, and kinks in the supply chain. In
conjunction with other planning techniques, the company used the SWOT analysis to leverage its
strengths and external opportunities to eliminate threats and strengthen areas where it is weak.
The Bottom Line
A SWOT analysis is a great way to guide business-strategy meetings. It's powerful to have everyone
in the room discuss the company's core strengths and weaknesses, define the opportunities and threats,
and brainstorm ideas. Oftentimes, the SWOT analysis you envision before the session changes
throughout to reflect factors you were unaware of and would never have captured if not for the group’s
input.
A company can use a SWOT for overall business strategy sessions or for a specific segment such as
marketing, production, or sales. This way, you can see how the overall strategy developed from the
SWOT analysis will filter down to the segments below before committing to it. You can also work in
reverse with a segment-specific SWOT analysis that feeds into an overall SWOT analysis.
Although a useful planning tool, SWOT has limitations. It is one of several business planning
techniques to consider and should not be used alone. Also, each point listed within the categories is
not prioritized the same. SWOT does not account for the differences in weight. Therefore, a deeper
analysis is needed, using another planning technique.
References:
https://www.businessnewsdaily.com/15737-business-competitor-analysis.html
https://www.investopedia.com/terms/s/swot.asp
Topic Outcome
- Understand what is a lean startup
- Identify target customers and describe customer personas
A. LEAN STARTUP
There’s a reason why the Startup Way has emerged out of the Lean Startup movement. There have
always been leaders seeking to work more innovatively. What has been missing is a comprehensive
framework that helps startups—whether internal or external—figure out what to do and how to do it
every day. How do they measure progress to be sure they are getting closer to their goals? How do
they maximize the talent they already have? How do they discover the truth through experimentation?
That’s what Lean Startup provides.
The Roots of the Lean Startup
The Lean Startup takes its name from the lean manufacturing revolution that Taiichi Ohno and Shigeo
Shingo are credited with developing at Toyota. Lean thinking is radically altering the way supply
chains and production systems are run. Among its tenets are drawing on the knowledge and creativity
of individual workers, the shrinking of batch sizes, just-in-time production and inventory control, and
an acceleration of cycle times. It taught the world the difference between value-creating activities and
waste and showed how to build quality into products from the inside out.
The Lean Startup adapts these ideas to the context of entrepreneurship, proposing that entrepreneurs
judge their progress differently from the way other kinds of ventures do. Progress in manufacturing is
measured by the production of high-quality physical goods.
The Lean Startup asks people to start measuring their productivity differently. Because startups often
accidentally build something nobody wants, it doesn't matter much if they do it on time and on budget.
The goal of a startup is to figure out the right thing to build—the thing customers want and will pay
for—as quickly as possible. In other words, the Lean Startup is a new way of looking at the
development of innovative new products that emphasizes fast iteration and customer insight, a huge
vision, and great ambition, all at the same time.
How the Lean Startup Works
1. Identify the beliefs about what must be true in order for the startup to succeed. We call these
leap-of-faith assumptions.
2. Create an experiment to test those assumptions as quickly and inexpensively as possible. We
call this initial effort a minimum viable product.
3. Think like a scientist. Treat each experiment as an opportunity to learn what’s working and
what’s not. We call this “unit of progress” for startups validated learning.
4. Take the learning from each experiment and start the loop over again. This cycle of iteration
is called the build-measure-learn feedback loop.
5. On a regular schedule (cadence), make a decision about whether to make a change in strategy
(pivot) or stay the course (persevere).
Every startup is first and foremost about vision. The goal of Lean Startup is to find the fastest possible
path to realizing this vision. The specifics of how to arrive at the answers will, of course, look different
for each project but will follow the same basic steps, employing the scientific method to systematically
break down the plan into its component parts through rapid experimentation.
The Tools and Processes of Lean Startup
1. Leap-of-Faith Assumptions (LOFA)
Lean Startup is designed to operate in situations where we face such extreme uncertainty that we can’t
make an accurate forecast for what might happen. In such a circumstance, the best we can do is form
a set of hypotheses—in the scientific sense—about what we’d like to see happen. These hypotheses
are called leap-of-faith assumptions. In a traditional business plan, they embody the company’s current
guess at how its strategy will lead to the realization of its vision. Lean Startup requires making these
assumptions explicit, so that we can find out as soon as possible which are true and which are not.
When testing leap-of-faith assumptions, it’s tempting to ask customers directly what they want, either
through individual customer interviews, a focus group, or a survey. Many of us were taught to do this
kind of market research. But there’s a problem with this approach: people often think they know what
they want, but it turns out that they’re wrong.
Some startups team do not go on surveys but they go with a prototype product. They could observe
what customers actually did with it. The reason to run experiments is to discover customers’ revealed
preferences through their behavior. In other words, don’t ask customers what they want. Design
experiments that allow you to observe it.
Making assumptions is something we all do naturally. Every vision for a business is based on
assumptions about what is possible to build, what customers want, what kind of customers want it,
what distribution channels are available, and so on. Every part of a business plan contains assumptions.
But it’s crucial that teams, managers, and leaders take an honest look at the company’s plans and
accept that they are filled with technical assumptions about product features and specifications as well
as commercial assumptions about marketing and sales strategies. We need to put those assumptions to
the test through experimentation, measure what has been learned, and then move to the next action
step: either staying the course with whatever modifications are called for—or shifting the strategy
altogether.
2. Minimum Viable Product (MVP)
Once we’ve gathered predictions and assumptions and articulated value and growth hypotheses, the
next step is to build an experiment called a minimum viable product or MVP.
An MVP is an early version of a new product that allows a team to collect the maximum amount of
validated learning (learning based on real data gathering rather than guesses about the future) about
customers. Ideally, this learning will maximize the number of LOFAs tested while minimizing cost,
time, and effort.
In today’s marketplace of uncertainty, whoever learns fastest wins. The lean manufacturing concept
of “fundamental cycle time” is defined by the time elapsed between receiving an order from the
customer and delivering a high-quality product at a good price. For a startup “innovation factory,” the
fundamental cycle time is defined by how much time elapses between having an idea and validating
whether that idea is brilliant or crazy. Teams that drive down the validation cycle time are much more
likely to find product/market fit, because it increases (not guarantees, of course) the probability of
success.
A minimum viable product quickly turns an idea into something real—even if imperfect—in order to
begin the process of iterating and retesting. Although individual MVPs may be imperfect, the goal is
to ultimately create the most successful process or product possible with the least waste.
3. Validated Learning
If lean startup is all about rapid product iterations closely focused on user needs and requirements,
then validated learning is that part of the process by which we learn just how close each iteration is to
satisfying the people we’re building it for.
In fact, inventor of the lean startup approach, Eric Ries, has described validated learning as, “the unit
of progress for lean startups.” In other words, for a lean startup, success is not so much measured by
the number of units you manufacture but by the measurable responses from your target users.
Ries himself derived the idea from *Steve Blank’s concept of customer validation, that the basic ideas
underpinning your product or service should be tested with users, and tested early on in the process,
and with the minimum possible effort.
Going back to the user responses, the key word is “measurable”. Validated learning is quantifiable,
based on data such as revenue, user engagement, and feedback. The result is learning that is evidence-
based and actionable, leading to genuine product improvements in each iteration. Done properly,
validated learning is remarkably efficient.
*Steve Blank (born 1953) is an American entrepreneur, educator, author and speaker. He created the customer
development method that launched the lean start up movement.
4. Build-Measure-Learn
Building an MVP is not meant to be a one-time event. After measuring and analyzing it, it’s possible
to see where the idea has traction and where it doesn’t. Then build another MVP and launch it to keep
learning.
Build-Measure-Learn Loop
Build-Measure-Learn is one of the central principles of Lean Startup – a highly effective approach to
startup development pioneered by Eric Ries.
Ries says that the job of a startup is to find a successful revenue model that can be developed with
further investment. Build-Measure-Learn is a framework for establishing – and continuously
improving – the effectiveness of new products, services and ideas quickly and cost-effectively.
In practice, the model involves a cycle of creating and testing hypotheses by building something small
for potential customers to try, measuring their reactions, and learning from the results. The aim is to
continuously improve your offering so that you eventually deliver precisely what your customers want.
Build-Measure-Learn may sound simplistic, but it's been a game-changing technique for businesses
that previously developed products without getting potential customers' input. Sometimes, companies
would get lucky, but many wound up making sophisticated products that no one wanted.
Build-Measure-Learn improves on the "just do it" approach with an incremental, iterative

methodology that replaces assumption with knowledge and certainty.
5. Pivot or Persevere
The goal of all this experimentation is to learn enough to have a pivot-or-persevere meeting to evaluate
whether the current strategy is working. If each experiment seems more productive than the last—
there’s a lot of learning and data that supports at least some leap-of-faith assumptions—the next step
is to persevere, do another MVP that is a refinement of the previous one, and continue through the
build-measure-learn cycle.
If not, and the same negative feedback (or indifference) is coming from customers over and over even
though the product is “better,” or if the data convincingly invalidates a key assumption, it’s time to
pivot. This is perhaps Lean Startup’s most famous (or infamous, depending on your point of view) bit
of jargon: the pivot, a change in strategy without a change in vision.
Founders always have a vision. To achieve their goals and reach that vision, they need to define a
strategy. There’s no reason why that strategy should forever remain the same, but the vision certainly
can—and almost always will. In a pivot, the target market for, or feature set of, the product might
change without changing the overall vision for the problem. Each pivot creates a new series of
hypotheses, and the process begins again.
B. CUSTOMER PERSONA
Buyer personas are semi-fictional representations of your ideal customers based on data and research.
They help you focus your time on qualified prospects, guide product development to suit the needs of
your target customers, and align all work across your organization (from marketing to sales to service).
As a result, you'll be able to attract high-value visitors, leads, and customers to your business who
you'll be more likely to retain over time.
More specifically, having a deep understanding of your buyer persona(s) is critical to driving content
creation, product development, sales follow up, and really anything that relates to customer acquisition
and retention.
Carlo Valencia shared a Customer Persona Template where a team can write about their assumptions
about their customers. This persona will be the basis of the validation plan.
Customer validation starts with creating assumptions about your customers. These assumptions will
be used to create a customer validation plan where the team goes out and talks to customers and
validates whether the assumptions are true or not.
Customer Validation
Customer Validation is about understanding the problems and needs of your customers, gaining more
insights about them and confirming whether the idea is attractive to the target customer. On the next
page, the validation process is presented where an experiment design is created based on the
hypothesis, then a success criterion is identified, and the experiment is executed. Based on the result
and evaluation, the team can decide whether to pursue or pivot.
Design Experiment
A simplified validation board is presented below. It is a simple tool for testing out your latest startup
and product ideas. The goal of using the validation board is to help entrepreneurs all over the world
get out of the building and talk to customers.
Validation Methods
There are three validation methods that we recommend for customer validation:
1.Interview/Observe
2.Pre-sell/Pitch
3. Concierge
Interview and Observation
This method is used when you have little information about your customers. The goal is to validate
your assumptions about your customers and find pain points. During interviews, ask questions that
can make the team understand the pain points of the customers. Good questions are as follows:
• Can you tell about the last time you...?

• How are you currently solving [the problem]?
• How / where did you find about the solution?
• If you could wave a magic wand and have anything you wanted, what would it look like?
Avoid asking the following questions:

● Do you like [something everyone likes]?
● Do you have a problem with [too broad or too obvious problem]?
● Do you want more time and money?
● Do you wish you could have a [something awesome]?
● Anything that has to do with your solution.
It is also recommended that before interviewing customers, you assign roles to the team. During the
interview, the roles are:
1. Interviewer - the person asking the questions or having casual conversation with the customer.
2. Documenter – the person taking down notes
3. Observer - the person taking a video or photos of the interview
Pre-sell or Pitch
This method involves pitching your idea to the customers even before the product has been built. The
team can create a Facebook Page and a Landing Page of their proposed solution and monitor whether
their customers will engage with the pages. The team can also email or call prospective customers and
see whether they can get interest from them.
Concierge
The last method suggests that the team build a product with minimal technology as possible and deliver
that product to the customers. This will allow the team to test whether customers will use the product
or not.
Topic Outcome
- Describe the customer journey from recognizing a problem to accessing a
solution
- Know the techniques about making an effective storyboard
I. PROBLEM-SOLUTION HYPOTHESIS
What is hypothesis Testing?
To understand what hypothesis testing is, it’s important first to understand what a hypothesis is.
A hypothesis or hypothesis statement seeks to explain why something has happened, or what might
happen, under certain conditions. It can also be used to understand how different variables relate to
each other. Hypotheses are often written as if-then statements; for example, “If this happens,
then this will happen.”
Hypothesis testing, then, is a statistical means of testing an assumption stated in a hypothesis. While
the specific methodology leveraged depends on the nature of the hypothesis and data available,
hypothesis testing typically uses sample data to extrapolate insights about a larger population.
Hypothesis Driven Entrepreneurship in Startups
Startups are new organizations created by entrepreneurs to launch new products. A startup’s founders
typically confront significant resource constraints and considerable uncertainty about the viability of
their proposed business model.
A hypothesis-driven approach to entrepreneurship maximizes, per unit of resources expended, the

amount of information gained for resolving such uncertainty. When following this approach, an
entrepreneur translates her vision into falsifiable business model hypotheses, and then tests those
hypotheses using a series of minimum viable products (MVPs). Each MVP represents the smallest set
of activities needed to disprove a hypothesis.
Based on test feedback, an entrepreneur must decide whether to persevere with her proposed business
model; pivot to a revised model that changes some model elements while retaining others; or simply
perish, abandoning the new venture. She repeats this process until all of the key business model
hypotheses have been validated through MVP tests. At this point, the startup has achieved product-
market fit: it has a product that profitably meets the needs of the target market’s customers, and can
commence scaling.
A hypothesis-driven approach helps reduce the biggest risk facing entrepreneurs: offering a product
that no one wants. Many startups fail because their founders waste resources building and marketing
products before they have resolved business model uncertainty. By contrast, early-stage entrepreneurs
who follow a hypothesis-driven approach do not view growth as their primary objective. Instead, their
goal is to learn how to build a sustainable business. By bounding uncertainty before scaling, the
hypothesis-driven approach optimizes use of a startup’s scarce resources.
Steps in Hypothesis Driven Entrepreneurship
Step 1: Develop a Vision
Before an entrepreneur can generate business model hypotheses, he must have a vision for the problem
that his startup will address and a potential solution for that problem. This initial step of developing a
vision, also called ideation, is less subject to “by-the-book” instruction than the other stages in the lean
startup launch process.
Step 2: Translate the Vision into Hypotheses
Next, having developed a vision, the entrepreneur translates it into falsifiable business model
hypotheses. A business model is an integrated array of distinctive choices specifying a new venture’s
unique customer value proposition and how it will configure activities to deliver that value and earn
sustainable profits. These choices, can be grouped into four elements that define the new venture’s
customer value proposition, technology and operations plan, go-to-market strategy, and cash flow
formula.
Step 3: Specify MVP Tests
For an entrepreneur confronted with uncertainty and controlling limited capital and team resources, it
is essential to maximize learning per unit of time and effort expended. The best way to accelerate
learning is, in the words of investor and Y Combinator founder Paul Graham, to “launch early and
often.” Uncertainty can be resolved to some extent through traditional market research techniques such
as focus groups and customer surveys. However, entrepreneurs get far more reliable feedback when
they put a real product in the hands of real customers in a real world context.
How can one launch early and often? By specifying a minimum viable product (MVP): the smallest
set of features and/or activities needed to complete what *E. Ries calls a “Build-Measure-Learn” (3
lean startup principles) cycle and thereby test a business model hypothesis. By launching a series of
MVPs, an entrepreneur reduces product development batch sizes and cycle times, yielding two
benefits:
(a) First, short product development cycles accelerate feedback: entrepreneurs learn about customer
requirements before investing too much time in building features no one will use.
(b) Second, releasing feature revisions in small batches makes it easier to interpret test results and to
diagnose problems. If only a few aspects of a product have changed, it is easier to find bugs.
*Eric Ries is an American entrepreneur, blogger, and author of The Lean Startup, a book on the lean startup movement.
He is also the author of The Startup Way, a book on modern entrepreneurial management.
Minimum viable products may be “minimal” in one or both of two ways, compared to the product an
entrepreneur might expect to eventually offer when scaling aggressively. MVPs may constrain product
functionality and/or operational capability. With constrained product functionality, customers
experience only a subset of the features envisioned for subsequent versions of the product. With
constrained operational capability, a startup relies on temporary and makeshift technology to deliver
the MVP’s functionality.
Constrained Functionality. IMVU, a startup whose users socialize in a 3D virtual world, tested its
concept with an MVP that constrained functionality. IMVU’s team did not initially provide early
adopters with the ability to have their avatars walk from place to place, which would have required
extensive programming. Instead, they tested an MVP that permitted instantaneous “teleporting”
between locations—an easier programming task. This allowed the team to more quickly test demand
for what they perceived to be IMVU’s core functionality: social communications.
Specifying MVP functionality poses a special challenge when the long-term viability of an innovative
new product’s business model requires widespread adoption by mainstream customers. Such products
are often initially targeted to potential early adopter segments (e.g. Group B) whose needs may differ
from those of mainstream customers. Likely early adopters (e.g. Group A) may be “power users” who
desire advanced features. To ensure sales to early adopters, it can be tempting to specify MVPs that
include sophisticated features that might be deemed irrelevant by mainstream customers—or worse,
might confuse mainstream customers and position the new product in their minds as “not for me.”
Constrained Operations. The technology used to deliver the MVP’s functionality is often temporary
and makeshift relative to the operational capabilities required for scaling. For example, when they
were investigating demand for an online social question-and-answer service, Aardvark’s founders
relied on human operators rather than computer algorithms to identify individuals in a user’s social
network best able to answer questions. With Aardvark’s “mechanical Turk” MVP, users posed
questions using an SMS interface, and then received SMS answers minutes or hours later from people
in their extended social network. Users had no way of knowing that Aardvark employees—not
computers—had routed questions to the right people. With this temporary, ersatz solution, Aardvark’s
team was able to test demand and learn a great deal about customer needs before spending time and
money developing routing algorithms. The team avoided waste, because algorithms they might have
built before conducting consumer tests would almost certainly have required extensive revision once
consumer preferences were better understood.
Operational requirements are dictated by product functionality. Consequently, entrepreneurs should

generally employ MVPs with constrained operational capability whenever they are still defining their
product’s core functionality. Likewise, entrepreneurs should constrain operational capability when it
would be costly to acquire such capability and when relying on a temporary, makeshift solution does
not unduly impact customers’ ability to provide useful feedback.
Constraining Customer Sets. Whether they constrain functionality or operations, MVPs are typically
tested with a greatly reduced customer set, when compared to the pool of prospects that a scaling
startup would target. Acquiring a large numbers of customers before validating business model
hypotheses can be expensive and can exacerbate damage to a startup’s brand if a subsequent pivot
confuses and alienates the early adopters. Instead, MVPs should be tested with just enough customers
to provide reliable feedback. In the case of quantitative tests, this implies samples that are large enough
to yield statistically significant results, but no larger.
False Positive and Negative Results. When specifying MVPs, entrepreneurs should consider the risk
that their test design may yield either a false positive or a false negative result. A false positive
indicates that a hypothesis has been confirmed when in reality it is not valid. When evaluating demand,
false positive results are sometimes observed when entrepreneurs recruit enthusiasts— individuals
with an unusual level of passion for the product category—as test subjects. If test subjects’ preferences
are not representative of those of the bulk of prospects who will be targeted as a startup scales, then
high rates of engagement observed in an MVP test may not be meaningful indicators of demand.
A false negative indicates that a hypothesis has been disconfirmed when in reality it is valid. False
negative results regarding demand for a new product are more likely to occur with a badly built MVP
or a poorly executed test. For example, if test subjects expect web pages to load quickly, they might
abandon a sluggish, badly built MVP, even if they perceived the new product’s value proposition to
be otherwise appealing.
Step 4: Prioritize Tests
After generating business model hypotheses and specifying MVPs to test them, an entrepreneur must
prioritize the tests, deciding how to sequence them.
As a general principle, an entrepreneur should give priority to tests that can eliminate considerable
risk at a low cost. An example would be a patent search, which often costs less than $2,000. Litigation
over alleged patent infringement can shut down a startup. If a lawsuit is a real possibility, then it makes
no sense to start building and marketing a product until a patent search is completed. Likewise, when
business model elements are serially dependent, then an entrepreneur will have little choice about how
to sequence experiments. For example, hypotheses about a go-to- market plan or a technology sourcing
strategy usually will depend on a startup’s customer value proposition.
Step 5: Learn from MVP Tests
In the next stage of the lean startup process, entrepreneurs evaluate feedback gained from MVP tests.
As noted above, they should ask whether the result might be a false positive or false negative.
Entrepreneurs also should be on guard against two other potential sources of error. The first comes
from customers, whose stated preferences do not always correspond to their true preferences. Consider
the experience of Facebook in launching two new features: Beacon, which posted information about
users’ purchase transactions (e.g., their Netflix rentals) and News Feed. Both features generated
protests from Facebook users. Yet, the former was dropped while the latter was retained. Why?
Because Facebook had data to show that users were engaging with News Feed but not Beacon.
Facebook’s management acted on users’ revealed rather than stated preferences.
The second source of potential error in interpreting test feedback comes from the entrepreneur herself.
Extensive psychological research shows that humans are vulnerable to cognitive biases: they see what
they want to see, and they see what they expect to see.
Step 6: Persevere, Pivot, or Perish
After evaluating MVP test results and other market feedback, an entrepreneur must decide whether to
persevere, pivot, or perish.
Persevere. If the MVP validates the business model hypothesis and other feedback does not prompt a
shift in direction, then the entrepreneur perseveres on his current path, either testing remaining
hypotheses or—if all hypotheses have been validated—preparing to scale.
Pivot. If the MVP test rejects the business model hypothesis or if it validates the hypothesis, but other
feedback indicates that greater opportunity lies elsewhere, then the entrepreneur may elect to pivot. In
basketball, a pivoting player keeps one foot planted while moving the other. For startups, the same
principle holds: a pivot changes some business model elements while retaining others. In particular,
core aspects of the startup’s original vision are typically retained, for example, a commitment to
solving a broad problem, to serving a certain customer segment, or to employing a proprietary
technology. Consistent with this, Ries defines a pivot as changing strategy while retaining one’s
original vision.
Perish. If an MVP test decisively rejects a crucial business model hypothesis, and the entrepreneur
cannot identify a plausible pivot, then she should shut down her business.
Step 7: Scaling and Ongoing Optimization
If an entrepreneur has validated all key business model hypotheses, then he has achieved product-
market fit. Product-market fit means that the venture has the right product for the market: one with
demonstrated demand from early adopters and with solid profit potential. This in turn implies that the
venture can deliver adequate value to all relevant parties: employees will join; customers will buy the
product at the price being offered; partners will be motivated to provide technology and distribution;
and investors will be able to earn adequate returns. It is time to scale, to invest aggressively in customer
acquisition and to amass the additional resources required—staff and infrastructure—to serve a rapidly
growing customer base.
II. HOW TO STORYBOARD EFFECTIVELY
A storyboard is a graphic organizer that provides the viewer with a high-level view of a project. It
turns your ideas into a logical and convincing sequence. It is a technique that does indeed come from
the cinema industry where a linear sequence of illustrations used in animation to develop a broader
story. This process is now used also in business to understand and map’s customers’ experience, enable
the growth of the company (using this process) and it also helps to put together your business startup
story in a convincing way. Storyboarding, which has become a best practice and process in the movie
industry, is now becoming also an essential process in business.
Why Use Storyboards?
Traditionally, storyboards have been used in media and film to plan out video shots before investing
time and resources into the actual production. The use of storyboards for product development and
UX design is not that much different. Storyboards allow product designers to easily and inexpensively
test multiple product visions, customer journey maps, and UX product flows until a clear final product
design is created and understood by all departments.
Start with the product vision. This is a simple statement, story, or example of how you want the product
to function and what objective you want it to achieve. The vision helps the product developer
understand the user’s journey as they interact with the product and design the product around the user’s
needs.
Creating a few product visions and working across departments is an essential first step to developing
a product. Use this step to communicate the product goals to the development team and to create a
realistic timeframe for feature development and market release. A storyboard allows for a clearer
understanding from the start of how the product is intended to be built and minimizes the chances for
miscommunications as the development process continues.
Next, storyboarding helps create customer journey maps of your target personas. It’s important to
remember that your product users and your product purchasers may not be the same people, and
therefore you will have to cater both your product design and marketing efforts differently depending
on which audience you’re trying to reach. Work with your team and narrow down a few key buyer
personas. Step into their shoes and walk through what you think their process would be, step-by-step,
when it comes to realizing what problem they have, looking for a solution, purchasing your product,
and finally seeing positive results from the product implementation. Creating a customer journey map
storyboard allows developers to experience the product discovery and purchasing process, which in
turn can maximize your conversion rate.
Finally, it’s time to dig into the actual UX/UI of the product. When developing a product’s
functionality and flow, it’s easy to either miss essential steps that we chalk up in our own heads as
“automatic” or do the opposite and get carried away and create superfluous user required actions.
Creating a storyboard allows product developers to easily walk through a sample UX step-by-step.
The exercise points out holes and problems, where a user might get lost in the process or wasteful
steps that may decrease conversion rate.
How to Get Started
Here are some guiding questions to help you create storyboards for each of the three essential product
development milestones:
Creating a product vision:
• What problem are my target users currently experiencing?

• What would help alleviate this problem?
• How will my product provide this form of problem alleviation?
• What does a “happy user” look like?
Creating a customer journey map for key user personas:
• Who would be buying my product? How old are they? What is their professional background?
What are their motivations (both personal and professional)?
• What problem are my buyers currently experiencing?
• How would they come across my product as a solution?
• What problems would they face when either trying to purchase my product, or implement it in
their business?
• What would success from our product look like from our buyer’s perspective?
Creating a user experience flow:
• Where do you want your users to land?

• What is the “hook” that will stop them from bouncing on your page?
• Do you need different landing pages for different types of users?
• How can you capture their contact info so your sales team can follow up on a lead?
• Are all the steps necessary? Can you cut any out to streamline the flow and increase conversion
rate?
• Is there a clear and obvious way for the users to purchase the product?
Keeping these guiding questions in mind, it’s time to start creating. Create a storyboard from scratch
or use a premade template like the one below to help you get started. Play around with different ideas
and discuss with coworkers across departments. Iterate your storyboards until consensus has been
reached and everyone clearly understands the action items for starting the product development
process. Make sure to keep your storyboards handy and constantly update them throughout the design
process. As ideas change and grow so should your storyboards!
Techniques
Telling an engaging story can be done in different ways. Each technique has advantages and
disadvantages and is better suited for certain situations and audiences. Choose a suitable technique
after you understand who your audience will be and the context in which you will present.
Example:
The Journey of Entrepreneur Erin
The fictional, but based on real events journey of an entrepreneur using storyboards to help her and
her team design, build, and iterate her product.
Erin left her job at the big company she worked for and decided to pursue her dreams and start her
own company. She already had an idea — SoLoMoFoo. SoLoMoFoo is an application to alert
employees when free food is available in common areas — like conference rooms, shared office
kitchens, or private offices. At her old job, she had noticed far too often that free food goes to waste
due to lack of awareness and employees become disgruntled after hearing about free food that they
had just missed. She decided that this problem needed a solution and that she was going to build it!
First, she needed to figure out who exactly her target users would be.
A useful way to discover potential target users is to create personas. Erin decided she was going to
map out a few of her target users and buyers and record some of their unique characteristics.
Personas for SoLoMoFoo
Erin knows that SoLoMoFoo will solve a problem that exists (the lack of awareness about free
available food) — but who does this problem exist for? Who will be using her product? Before Erin
starts to create storyboards she first has to build her personas. Generally, companies will have to focus
on two different types of personas — user personas and buyer personas.
HubSpot persona template
To start creating the personas you need, there are several online resources you can use. For example,
you can use a persona worksheet template like this:
Customer journey map for SoLoMoFoo
Now that Erin has identified SoLoMoFoo’s key user and buyer personas it’s time for her to discover
how these personas may come across her product, how they would use it, and what potential obstacles
they may face throughout the process. A great way to do this is to create journey maps in the form
of storyboards.
Buyer journey map for SoLoMoFoo
In the case of Entrepreneur Erin, she has to consider how the lack of access to free food would affect
HR Hailey, how she would research possible solutions, how she would come across SoLoMoFoo, how
the SoLoMoFoo platform would be implemented at her place of work, and the potential benefits and
timeline for those benefits that the SoLoMoFoo program would bring.
User-experience storyboard
Entrepreneur Erin has successfully identified who she believes her target users and buyers are and how
they will come in contact and use her product. Now it’s time for her to design the SoLoMoFoo user
experience.
A useful way to step back and view your product from a user’s point of view is to create UX concepts
through storyboarding. Creating storyboards, cell-by-cell, forces you to walk through every step
of your UX process as a user. You can easily create multiple storyboards and try out different UX
approaches to find the most efficient concept.
User-experience storyboard with detailed descriptions
Finally, Erin has identified her target users and buyers, journey mapped their process, and built a
streamlined UX — but the product development process is never over.
References
https://online.hbs.edu/blog/post/hypothesis-testing
https://edisciplinas.usp.br/pluginfile.php/5048746/mod_resource/content/1/hde.pdf
https://www.uxbooth.com/articles/how-to-use-storyboards-for-product-development/
https://www.smashingmagazine.com/2018/11/value-storyboarding-product-design/
Topic Outcome
- Understand what is value proposition and product market fit
I. VALUE PROPOSITION
A value proposition refers to the value a company promises to deliver to customers should they choose
to buy their product. A value proposition is part of a company's overall marketing strategy. The value
proposition provides a declaration of intent or a statement that introduces a company's brand to
consumers by telling them what the company stands for, how it operates, and why it deserves their
business. Essentially, a value proposition specifies what makes the company’s product or service
attractive, why a customer should purchase it, and how the value of the product or service is
differentiated from similar offerings.
A value proposition can be presented as a business or marketing statement that a company uses to
summarize why a consumer should buy a product or use a service. This statement, if worded
compellingly, convinces a potential consumer that one particular product or service the company
offers will add more value or better solve a problem for them than other similar offerings will.
Generally, the value proposition is addressed to the company’s target customers or target market
segment. The proposition takes the form of a short, clear, and concise statement of the tangible and
intangible benefits that will be delivered to customers. The perfect proposition must quickly transmit
the values to potential customers without the need for further explanation. Each proposition must be
unique, as it is a method to communicate the differentiation points of a company to the target
customers.
The value proposition must not be confused with slogans and catchphrases, as the latter two may not
clearly convey the benefits of a company and its products.
A great value proposition demonstrates what a brand has to offer a customer that no other competitor
has and how a service or product fulfills a need that no other company is able to fill.
Understanding a Value Proposition
A value proposition stands as a promise by a company to a customer or market segment. The

proposition is an easy-to-understand reason why a customer should buy a product or service from that
particular business. A value proposition should clearly explain how a product fills a need,
communicate the specifics of its added benefit, and state the reason why it's better than similar
products on the market. The ideal value proposition is to-the-point and appeals to a customer's
strongest decision-making drivers.
Companies use this statement to target customers who will benefit most from using the company's
products, and this helps maintain a company's economic moat. An economic moat is a competitive
advantage. The term—coined by super-investor Warren Buffet of Berkshire Hathaway—states that
the wider the moat, the bigger and more resilient the firm is to competition.
Importance of a Value Proposition
The development of a value proposition is a vital part of a company’s business strategy. Since the
proposition provides a company with a method to influence the decision-making of customers, it is
frequently displayed on the company’s marketing materials, such as a website.
The value proposition is a powerful tool to drive sales and build a customer base. Additionally, a
perfect and compelling value proposition can advance the effectiveness of the company’s marketing
strategies. Generally, it is regarded as the most effective and wide-reaching marketing activity.
Requirements of a Value Proposition
A company's value proposition communicates the number one reason why a product or service is best
suited for a customer segment. Therefore, it should always be displayed prominently on a company's
website and in other consumer touch points. It also must be intuitive, so that a customer can read or
hear the value proposition and understand the delivered value without needing further explanation.
Value propositions that stand out tend to make use of a particular structure. A successful value
proposition typically has a strong, clear headline that communicates the delivered benefit to the
consumer. The headline should be a single memorable sentence, phrase, or even a tagline. It frequently
incorporates catchy slogans that become part of successful advertising campaigns.
Often a subheadline will be provided underneath the main headline, expanding on the explanation of
delivered value and giving a specific example of why the product or service is superior to others the
consumer has in mind. The subheading can be a short paragraph and is typically between two and
three sentences long. The subheading is a way to highlight the key features or benefits of the products
and often benefits from the inclusion of bullet points or another means of highlighting standout details.
This kind of structure allows consumers to scan the value proposition quickly and pick up on product
features. Added visuals increase the ease of communication between business and consumer. In order
to craft a strong value proposition, companies will often conduct market research to determine which
messages resonate the best with their customers.
How to Create a Value Proposition
As we’ve already determined, the perfectly tailored value proposition can become a huge success
factor for a company. However, the creation of a powerful proposition is a challenging yet rewarding
task for every business. Below, we have listed some tips that will help you to create an effective one:
1. Know your customers

Before creating your value proposition, you must analyze the market and potential customers. Identify
your target customers and target market segment to understand their desired benefits.
2. Understand your costs and benefits

Identify and assess the benefits delivered by your company and its products or services, along with
the costs incurred to provide them. It is important to do this because the value to your customers is
essentially the difference between the benefits and costs of your product or service.
3. Don’t forget about your competitors
After the analysis of target customers and your own company, evaluate the competitive landscape in
the market. Determine the strengths and weaknesses of your major competitors and identify ways you
can differentiate your business from them.
4. Be clear and concise

Don’t forget that an effective value proposition is clear and concise. Your target customers must
quickly grasp the message you want to convey. It should not exceed two or three sentences.
5. Design is king!
Make your proposition visible and appealing on all marketing materials (e.g., website). Remember
that if you have created a powerful value proposition, but no one can see it, the effect of the proposition
will be zero!
Special Considerations
Value propositions can follow different formats as long as they are unique to the company and to the
consumers the company services. All effective value propositions are easy to understand and
demonstrate specific results for a customer using a product or service. They differentiate a product or
service from any competition, avoid overused marketing buzzwords, and communicate value within
a short amount of time. For a value proposition to effectively turn a prospect into a paying customer,
it should clearly identify who the customers are, what their main problems are, and how the company's
product or service is the ideal solution to help them solve their problem.
II. PRODUCT MARKET FIT
Product-market fit describes a scenario in which a company’s target customers are buying, using, and
telling others about the company’s product in numbers large enough to sustain that product’s growth
and profitability.
According to entrepreneur and investor Marc Andreesen, who is often credited with developing the
concept, product-market fit means finding a good market with a product capable of satisfying that
market.
How Do You Achieve It For Your Product?
Just as the best way to measure product-market fit will differ for each company, there is no single path
to achieving it. In his book, The Lean Product Playbook, Dan Olsen offers one high-level method that
can help get your team started:
1. Determine your target customer

2. Identify underserved needs of that customer
3. Define your value proposition
4. Specify your minimum viable product (MVP) feature set
5. Develop your MVP
6. Test your MVP with customers
Then, based on those user tests and surveys, use metrics like the ones suggested above, from Andrew
Chen, to determine if you’re headed in the right direction.
To correctly achieve product-fit, you need to determine you target customers. Once that is done, you
need to create products that will meet unmet customer needs. Customer needs is the priority here as
they are the key element. It is not possible to achieve the product market fit in a single attempt. There
are multiple runs required before the perfect mix of target customers, value proposition is sought. We
must work based on audience feedback and take it seriously. Another point is that product-market fit
is dynamic, it will keep changing as customer needs evolve over time. Constantly re-evaluating market
conditions, market requirements, customer need, and feedback will help fit in the market.
Why is it Important?
Alex Schultz, Facebook’s VP of Growth, says the biggest problem he sees facing the companies he
advises is that they don’t have product-market fit when they think they do.
So, why is achieving it so important? Why do many venture capitalists demand evidence of product-
market fit before investing in a company? Why does Andreesen, in fact, believe in the division of
every startup’s life into two key stages: before product-market fit (BPMF) and after product-market
fit (APMF)?
The answer is simple: Before you develop a product that you confirm enough people are willing to
pay for, your team cannot afford to focus on other important strategic objectives such as growth or
upselling existing users. Those initiatives could even be counterproductive, in fact, if you haven’t first
determined that your product has enough of a market to sustain itself and generate a profit.
Who is Responsible for Product-Market Fit?
We generally associate the concept with marketing and product management. In reality, achieving it
is a shared responsibility across the company. Sales, business development, support, finance, and all
other departments help the company reach this important milestone.
How is Product-Market Fit Measured?
No single set of metrics can tell any business when it achieves product-market fit. But Andrew Chen,
a venture capitalist, offers some signals that a company is heading in the right direction with its
offering:
• When surveying potential customers or allowing them to test your product, does some segment
indicate they will switch to your product?
• Are some users who have rejected similar products on the market willing to try yours?
• When user testing, do people group your product accurately with the right competitive
offerings?
• Do users demonstrate an understanding of your product’s differentiators or unique value
proposition?
• How do your underlying metrics (such as retention rates of users) measure up against those of
your competitors?
Chen’s signals represent a mix of both qualitative and quantitative metrics. This is by design. Whatever
methods your team uses to gauge success, you will want to include a mix of both as well. For example:
Quantitative:
• NPS score
• Churn rate
• Growth rate
• Market share
Qualitative:
• Word of mouth. (As Andreesen says, if your customers talk about your products with others,
they effectively become your product’s sales reps.)
• Calls from the media or industry analysts come in much more frequently, and coverage of your
product and company increases.
References
https://www.investopedia.com/terms/v/valueproposition.asp
https://www.productplan.com/glossary/product-market-fit/
Topic Outcome
- Recognize an opportunity and identify a problem.
III. OPPORTUNITY RECOGNITION
A. Finding an Opportunity
Against the backdrop of the increasing globalization and competition in business environments, the
capability to recognize entrepreneurial opportunities is a major prerequisite for innovativeness and
entrepreneurial performance. In fact, the identification of opportunities is the first step in the
entrepreneurial process. Therefore, the importance of opportunity recognition is paramount as, without
spotting opportunities, no entrepreneurial action can take place. Incumbent firms and entrepreneurs
need an in-depth understanding of how opportunities considered to be valuable by the market can be
identified and what factors influence the opportunity recognition process. With a clear understanding
of the factors that influence the opportunity recognition process, entrepreneurs can increase the
likelihood that profitable opportunities can indeed be found.
Opportunity recognition is actually a process that's found in the way that individuals and businesses
with an entrepreneurial mindset approach new business ventures or ideas. You recognize that you have
an idea or a capability that could be beneficial to a particular audience.
An opportunity is a favorable set of circumstances that creates the need for a new product, service, or
busines idea. Most entrepreneurial firms are started in one of two ways: (a) Some firms are internally
stimulated. An entrepreneur decides to start a firm, searches for and recognizes an opportunity, then
starts a business, (b) Other firms are externally stimulated. An entrepreneur recognizes a problem or
an opportunity gap and creates a business to fill it.
Aspiring entrepreneurs can come up with ideas all day long, but not every idea is necessarily a good
idea. For an idea to be worth pursuing, we must first determine whether the idea translates into an
entrepreneurial opportunity. Entrepreneurial opportunity is the point at which identifiable consumer
demand meets the feasibility of satisfying the requested product or service. In the field of
entrepreneurship, specific criteria need to be met to move from an idea into an opportunity. It begins
with developing the right mindset-a mindset where the aspiring entrepreneur sharpens their senses to
consumer needs and wants, and conducts research to determine whether the idea can become a
successful new venture.
In some cases, opportunities are found through a deliberate search, especially when developing a new
technologies. In other instances, opportunities emerge serendipitously, through chance. But in most
cases, an entrepreneurial opportunity comes about from recognizing a problem and making a
deliberate attempt to solve the problem. The problem may be difficult and complex, such as landing a
person on Mars, or it may be a much less complicated problem such as making a less expensive and
more comfortable mattress.
Theories of Opportunity
In the twentieth century, economist Joseph Schumpeter, stated that entrepreneurs create value “by
exploiting a new invention or, more generally, an untried technological possibility for producing a
new commodity or producing an old one in a new way, by opening up a new source of supply of
materials or a new outlet for products, by recognizing an industry” or similar means.
According to Schumpeter, entrepreneurial innovation is the disruptive force that creates and sustains
economic growth, though in the process, it can also destroy established companies, reshape industries,
and disrupt employment. He termed this force creative destruction. Schumpeter described business
processes, including the concept of downsizing, as designed to increases company efficiency. The
dynamics of business advances the economy and improves our lifestyle, but the changes (sometimes
through technology) can make other industries or products obsolete. For instance, Schumpeter
provided the example of the railroad changing the way companies could ship agricultural products
quickly across the country by rail and using ice “cold cars”, while at the same time destroying the old
way of life for many ranchers who wrangled cattle from one location to their intended commercial
destination.
Today, we might think of the displacement of taxi drivers by ride-sharing services such as Uber and
Grab as a modern-day example of this concept. To own and operate a cab (in New York), for instance,
one must buy what is called a taxi medallion, which is basically the right to own and operate a cab.
Drivers take out loans to buy these medallions, which cost hundreds of thousands of dollars. But now,
ride-sharing services have eaten in to the taxi industry, all but destroying the value of the medallions,
and the ability of taxi drivers to make the same money they were before the popular services existed.
This change has left many taxi drivers in financial ruin. Schumpeter argued that this cyclic destruction
and creation was natural in a capitalist system, and that the entrepreneur was a prime mover of
economic growth. To him, the goal was to progress, and progression starts with finding new ideas. He
identified these methods for finding new business opportunities:
1. Develop a new market for an existing product.
2. Find a new supply of resources that would enable the entrepreneur to produce the product
for less money.
3. Use existing technology to produce an old product in a new way.
4. Use an existing technology to produce a new product.
5. Finally, use new technology to produce a new product.
We can understand theories of opportunity as related to supply or demand, or as approaches to

innovations in the use of technology. The first situation is a demand opportunity, whereas the
remaining situations are supply situations. The final three incorporate technological innovations.
Supply and demand are economic terms relating to the production of goods.
Supply is the amount of a product or service produced. Demand is the consumer or user desire for
the outputs, the products, or services produced. We can use the ideas from Schumpeter to identify new
opportunities. Our focus is on identifying where the current or future supply and the current or future
demand are not being met or are not aligned, or where technological innovation can solve a problem.
More recent research has expanded on the concept of technological entrepreneurial opportunities,
identifying several areas: creating new technology, utilizing technology that has not yet been
exploited, identifying and adapting technology to satisfy the needs of a new market, or applying
technology to create a new venture.
Regardless of which of Schumpeter’s paths entrepreneurs pursue, before investing time and money,
the business landscape requires a thorough investigation to see whether there is an entrepreneurial
opportunity. Remember, entrepreneurial opportunity is the point at which identifiable consumer

demand meets the feasibility of satisfying the requested product or service. “Feasibility” in this
definition includes identifying a sizable target market interested in the product or service that has
sufficient profitability for the venture’s financial success.
Identifying Opportunity
A good place to begin your entrepreneurial quest is to read as much as you can, especially with new
technology developments, even outside the field you work in. Remember that as technologies start to
emerge, we often do not yet understand their commercial potential. For example, microwave
technology was first applied in radars to track military submarines. But, thanks to a curious man named
Percy Spencer and the accidental melting of a peanut bar in his pocket one day while tinkering with
the technology, the microwave was born. It would take a few decades for it to be produced at a price
the mass market could afford.
Think of drones, too. When they were invented, the multiple uses for this technology were not yet
identified. Now, drone technology is being used by real estate firms, package delivery services,
agriculture, underwater search and scientific research, security, surveillance, and more. Being tuned
in to new experiences and information can lead to identifying opportunities.
Entrepreneur Fred Smith found a system to solve the problem of overnight package delivery in
founding Federal Express. As a college student, he wrote a paper for an economics class where he
discussed his business idea. He earned only a C on his paper, by the way. He received his bachelor’s
degree in 1966 and went on to found Federal Express a few years later, which, in 2019, generated
almost $70 billion in revenue. Prior to starting Federal Express, Smith was in the US Marine Corps
serving in Vietnam where he observed the military’s logistics systems. This is where he honed his
interest in shipping products while in the military. Many entrepreneurs start their business after
working for someone else and seeing a better way to operate that business, and then start their own
competing business.
Note that entrepreneurs need to be careful about starting competing businesses. Indeed, some
entrepreneurs, like Smith, conduct research as an idea percolates, paying attention to new experiences
and information to further advance their idea into an entrepreneurial opportunity. However, they must
ensure that the existing product, service, or business process is not covered by any active and protected
intellectual property (patent, trademark, copyright, or trade secret).
Identifying consumer needs may be as simple as listening to customer comments such as “I wish my
virtual orders could be delivered more quickly.” or “I can never seem to find a comfortable pillow that
helps me sleep better.” You can also observe customer behavior to gather new ideas. If you are already
in business, customer feedback can be a simple form of market research.
When purchasing an existing business or franchise, the process is a bit different. The first step will
usually be searching for a business that suits your experience, personal preferences, and interests. You
will still want to conduct research to understand the industry, the local market, and the business itself.
Then, you will begin to examine all available company financial data. If purchasing a franchise, you
may want to contact other franchise owners and discuss their experience in working with the
franchisor.
Drivers of Opportunity
Some recent drivers for change in the entrepreneurial space include new funding options,
technological advancements, globalization, and industry-specific economics.
• Increased access to capital through social media sources like crowdsourcing is having a
significant impact on entrepreneurship in that it enables underserved people and communities
who otherwise might not be able to start and own a business—to become entrepreneurs.
• Technological advancements continue to provide new opportunities, ranging from drones to
artificial intelligence, advancements in medical care, and access to learning about new
technology. For example, drone technology is being used to map and photograph real estate,
deliver products to customers, and provide aerial security and many other services. Cell phones
have spawned many new business opportunities for a wide range of cell phone accessories and
related products, ranging from cell phone cases to apps that help make our cell phones faster
for business and personal use.
• Increased globalization drives entrepreneurship by allowing importing and exporting to
flourish. Globalization also helps spread ideas for new products and services to a world market
instead of a local or regional market. Combined with the Internet and computer technology,
even small businesses can compete and sell their products around the globe.
• Economic factors could include a strong economy that fuels other businesses. For example,
growth in the housing market fuels growth for many housing-related products and services,
ranging from interior decorating to landscaping as well as furniture, appliances, and moving
services.
B. Identify a Problem
We often hear “for a business to succeed, it must solve a problem.” This seems like a no-brainer. In
fact, the more you think about the statement, the more obvious it seems. Yet one of the main causes
for start-up’s failure is the lack of real need in the market, according to a recent post-mortem on start-
ups. Entrepreneurs get so caught up in creating a new product, they forgot to outline exactly what
problem they aim to solve. Customers buy products to satisfy a need they want to satisfy.
Identifying business problems is a big part of how you handle the issue of your company not making
as much money as it realistically could be. Being able to quickly identify problems within your
business is even more important when your company is losing money.
In many instances, a problem with a business may not be readily apparent from the start. It isn’t
uncommon for a problem to go unnoticed until it’s been around long enough to cause some
damage. At that point, you and your staff could find yourselves scrambling to deal with the issue, so
that you minimize the impact.
Even if you manage to catch it quickly, your revenue and market share could suffer just as easily as
your reputation with your customers and clients.
Identifying and providing a solution to an existing problem is the foundation of business. According
to Marius Ursache, “the real talent in entrepreneurship is finding the right problem, not building the
right solution.” It is important to remember that as an entrepreneur you are not simply making a
product, you are developing a business and that starts only with a strong idea and a sound
understanding of it.
So how do you go about Identifying Business Problems so that you can deal with them as early as
possible?
It’s Important to Ask Yourself Questions
You can’t come up with an answer unless you have a question first. When you’re looking for a way
to identify a problem, it helps to ask yourself questions so that you can come up with potential
solutions.
Let’s say that you have a customer who wants to return something that they purchased from your
company. When they do attempt to return it, either you or one of your employees messes up the
process, making it take longer than it should.
Why did it happen this way?
Was the employee in question properly trained in the return process?
Did they carefully listen to the customer’s concerns?
These are just a few of the questions that can arise in a situation like this. Without the right answers,
you could not only jeopardize your relationship with this particular customer, but others who come
later.
Identifying business problems by being able to answer these questions in a way that will only improve
the area that’s being questioned is critical to solving a small issue before it has the chance to grow.
If you don’t work to appease the customer in the above example, for instance, who’s to say how many
ears that could reach the word of the customer’s negative experience could reach?
Without addressing the customer’s problem to their complete satisfaction, you could open yourself up
to scrutiny from many others in the future.
Know What the Root Cause Is
Part of identifying business problems and dealing with them should ideally involve the goings-on
beneath the surface.
Everything happens for a reason in business, good or bad.
Has more than one person returned the same product? There might be a problem with its design or
construction.
Do you feel as though you’re not getting enough business? You may need to increase your marketing
efforts by doing some advertising.
Has an employee’s performance dropped recently? There may be an issue in his or her personal life
that’s causing it.
Beneath every problem is a deeper issue that has to be dealt with for the problem to be completely
eliminated, rather than simply swept to the side.
If you leave the underlying cause of a problem in place, you run the risk of the immediate issue coming
back time and again.
Get Some Insight
Identifying business problems isn’t something that you should always try yourself.
It could be that a problem exists right under your nose, but you’re not in any kind of position to notice
it. That’s why it helps to get outside opinions. Talk to co-workers, customers, and entrepreneurs in the
same industry, and anyone else who might be able to find issues that you could be missing.
By consulting with people who are constantly exposed to parts of your business that you may not deal
with every single day, you could potentially uncover issues that might have otherwise been allowed
to persist.
That’s why it pays to practice a degree of transparency and open dialogue in business. Not only will
you have other sets of eyes and ears that will notice things that you could overlook, but you’ll be
establishing bonds of trust that could take your business places for years to come.
Don’t Waste Time
When it comes to identifying business problems, the worst thing you can do is let it sit. Problems have
a tendency to snowball if you let them, so you need to be proactive.
By having even a small role in every aspect of your business, you will have some idea of how things
are run. That will expose you to the idiosyncrasies of that part of the business and show you what you
can do about issues as they arrive.
As you become more familiar with your company’s different aspects, you’ll become better at
identifying business problems and keeping them from growing to the point where dealing with them
will take more time than it realistically should.
Remember, running a business successfully does not need to be complicated. Keep it simple!
References:
https://openstax.org/books/entrepreneurship/pages/5-1-entrepreneurial-opportunity
https://portalcfo.com/identifying-business-problems/
Topic Outcome
- Form a team and identify roles and duties.
II. TEAM FORMATION
Entrepreneurial team formation—the process through which founders establish a team to start a new
venture—has important implications for team performance and entrepreneurial success. While
research on entrepreneurial team formation is gradually growing, it is at a critical juncture and marked
by considerable fragmentation. In part, this is because scholars have examined entrepreneurial team
formation through different disciplinary lenses and within very different contexts. The structured
content analysis situates the literature based on questions addressed for new venture team formation,
such as why, how, when, and where entrepreneurial teams are formed.
A team put your talents, time, and energy to their best use, taking on an overwhelming challenge and
using your wits (and a little trickery) to overcome every obstacle that crosses your path. To pull it off,
you need the right team. You shouldn’t need a pickpocket, but you will need a leader and a set of
diverse skills.
To build the perfect sprint team, first you’re going to need someone with authority to make decisions.
That person is the Decider, a role so important we went ahead and capitalized it. The Decider is the
official decision-maker for the project. At many startups, it’s a founder or CEO. At bigger companies,
it might be a VP, a product manager, or another team leader. These Deciders generally understand the
problem in depth, and they often have strong opinions and criteria to help find the right solution.
The main reasons why startups fail is because they don't have the right people on their team. It's very
important that startup founders have the right mix of qualities, characteristics and expertise so they'll
be able to achieve what goals they have set for the startup.
Get a Decider (or two)
The Decider must be involved in the sprint. If you are the Decider, clear your schedule and get in the
room. If you’re not, you must convince the Decider to join. You might feel nervous; after all, it’s a big
time commitment for a new process. If your Decider is reluctant, try one or more of these arguments:
Rapid Progress
Emphasize the amount of progress you’ll make in your sprint: In just one week, you’ll have a realistic
prototype. Some Deciders are not excited about customer tests (at least, until they see one firsthand),
but almost everyone loves fast results.
It’s an Experiment
Consider your first sprint an experiment. When it’s over, the Decider can help evaluate how effective
it was. We’ve found that many people who are hesitant to change the way they work are open to a
onetime experiment.
Explain the Tradeoffs
Show the Decider a list of big meetings and work items you and your team will miss during the sprint
week. Tell which items you will skip and which you will postpone, and why.
It’s About Focus
Be honest about your motivations. If the quality of your work is suffering because your team’s regular
work schedule is too scattered, say so. Tell the Decider that instead of doing an okay job on everything,
you’ll do an excellent job on one thing.
If the Decider agrees to the sprint but can’t spare a full week, invite him/her to join you at a few key
points. On Monday, he/she can share her perspective on the problem. On Wednesday, he/she can help
choose the right idea to test. And on Friday, he/she should stop by to see how customers react to the
prototype.
If the Decider only going to make cameo appearances, your he/she needs to have an official delegate
in the room. In many sprints with startups, the CEO appoints one or two people from the sprint team
to act as Deciders when he’s/she’s not there. In one sprint, the CEO sent the design director an email
that read, “I hereby grant you all decision-making authority for this project.” Absurd? Yes. Effective?
Absolutely.
And if your Decider doesn’t believe the sprint to be worthwhile? If he/she won’t even stop by for a
cameo? Hold up! That’s a giant red flag. You might have the wrong project. Take your time, talk with
the Decider, and figure out which big challenge would be better.
Once you’ve got a Decider (or two) committed to the sprint, it’s time to assemble your sprint team.
These are the people who will be in the room with you, all day, every day during the sprint. On
Monday, they’ll work with you to understand the problem and choose which part to focus on.
Throughout the week, they’ll be the ones sketching solutions, critiquing ideas, building the prototype,
and watching the customer interviews.
Formation Strategies
Forming teams in the entrepreneurial arena allows individuals to search for, and select, people with
whom to initiate a new venture. Regardless of whether the initial idea or business opportunity is
conceived by an individual or a group, two predominant formation strategies have been identified for
the key questions of “how do co-founders select each other?”
The interpersonal-attraction strategy suggests co-founders select each other because they share
similar interests, possess admirable qualities, and return the sentiment of liking. This strategy
emphasized supplementary fit, namely co-founding with members of the same kind and resemblance
between co-founders. In essence, this strategy follows the principle of ‘birds of a feather flock
together’. As co-founding relations stem from the need to work with similar others with whom one
can initiate a rich and fruitful connection. Studies documenting this strategy have identified linkages
among co-founders based on friendship, family ties, and ethnicity.
The resource-seeking strategy suggests co-founders are selected based on the resources required for
new venture creation. This strategy emphasizes complementary fit, as the focus is on individuals’
human capital-their knowledge, skills and capabilities-and access to relevant resources and assets.
Studies documenting the resource-seeking strategy showed evidence consistent with the selection of
co-founders based on the quest for complementary capabilities, higher education and experience, and
related industry knowledge.
The two strategies need not operate in isolation, and a few studies have documented entrepreneurial
team formation with attention to both strategies, either concurrently or sequentially.
Team Characteristics
In answering the question of “what are the consequences of entrepreneurial team formation for team
characteristics?”, studies have examined four inter-related characteristics. These include founding
team diversity, equity distribution, leadership, and structural boundaries. The immediate result of
entrepreneurial team formation is the team configuration (or composition), referring to the collective
characteristics of the founding team. This particularly relates to team diversity along demographic-
personal and functional-informational dimensions. Demographic-personal diversity has been studied
in terms of both surface attributes such as age, tenure, gender, and race, and deep-level aspects such
as personality traits and values. Functional-informational diversity has been measured through
founders’ education, professional background, and prior experience.
Research has also explored the equity-distribution in founding teams, particularly the equal or unequal
distribution among co-founders. Often, equity distribution among co-founders depends on the
leadership structure defined as whether the leadership, such as the responsibility for the new venture
vision, goals, and strategy, is concentrated in a single founder or shared across several founders. The
division of equity and leadership is often characterized by the ‘throne versus kingdom’ paradox: lead
entrepreneurs may desire possession of major shares and leadership authority (i.e., owning the throne),
even though it may undermine venture survival and financial performance (i.e., the kingdom).
Structural boundaries represent another important founding team characteristics. First, it distinguishes
between members considered core of peripheral in the founding team. Core members are enduringly
involved and significantly committed to the new venture activity, while peripheral members have a
more temporary and sporadic involvement, addressing specific needs during limited time-periods.
Such distinctions may occur in virtual-teams, could be correlated with above equity distributions, or
indicate the presence of ‘sleeping partners’ who provide their own capital or reputation but are barely
involved in the venture activity. Second, some new venture teams have blurred boundaries that
encompass external agents, such as consultants or surrogates who provide critical knowledge and
management skills. Notable is the fact that external supporters or surrogate entrepreneurs often join
the team during later stages. A final structural boundary relates to occurrence of double-tier formation
of new venture teams, such as the presence of junior sub-teams to pursue specific opportunities, while
senior members oversee activities alongside broader venture management. These multi-tier structural
boundaries are mostly observed in family settings or portfolio entrepreneurship.
Team Processes
While team processes have long been studied as an outcome of team characteristics, a key question is
“what are the consequences of entrepreneurial team formation for team processes?”. In line with recent
organizational behavior models of team research, a review illuminates the direct consequences of team
formation on team processes, and particularly the inter-related coordination and specialization team
process. The relational fit between co-founders may facilitate or impair effective communication,
mutual trust and smooth coordination of knowledge and perspective. These coordination-related
processes also include alignment of values and vision as well as cohesion in the form of interpersonal-
emotional bonds within a close-knit unit. In some settings, better coordination process have been
associated with superior performance outcomes.
Specialization-related processes may enable co-founders to rely on others’ diverse knowledge bases,
gain deeper expertise in different specialized domains, and improve venture capabilities and access to
a larger pool of resources. Similar to coordination processes, specialization processes have been linked
to higher performance due to a sustained ability to leverage expertise, as well as absorb and apply deep
knowledge from a large team knowledge-base.
Team Performance
Successful efforts at entrepreneurial team formation were associated with desirable performances
outcomes. Some of these performance indicators have been associated with the milestones and
markers including whether the team was successfully incorporated, raised seed capital, shipped the
first product/made the first sale, and hired a first full-time employee. Other interim performance
measures have been related to the ability to create demonstrations and minimum viable products, the
evaluation of pitches, and successful transitions across developmental phases. Venture performance
has also been measured by financial, growth, and survival indicators.
Tasks of Startup Founders
Before creating a team, we must first understand the key activities that most startups do. Startup
founders have a list of tasks to accomplish. Listed below are some of those vital tasks.
1. Idea generation. Given a specific problem or challenge, they must be able to brainstorm and
collaborate and contribute to what different kinds of ideas they have to solve the problem.
2. Project Management. Establishing a startup is like conducting a project. They should be able
to identify the scope of the project, cost of the project and time needed to execute a certain
task.
3. Design the product. They should be able to translate customer needs into a product design with
better user experience.
4. Develop the product. They should be able to build the solution that they propose.
5. Product marketing. They must be able to market the product and communicate the value
proposition of your product to your target market.
6. Customer qualification. They should be able to identify who their customers are and create a
persona of their customers--what motivates customers to buy a product or do certain tasks.
7. Business and revenue modeling. The team must be able to identify what kind of revenue models
are suitable for their product or service.
8. Competitive analysis. Team also must be able to identify who their competitors are and what
products are already existing in the market. Understanding your competitor would help you
strategize on how you can be unique apart from the existing competitors.
9. Product sales. They should be able to sell the product to target customers.
10. Product Deployment. They should also know how to deploy and bring the products to the
market
11. Accounting and finance. They should also be able to manage their finances efficiently,
especially during this initial stage of their business.
12. Public Speaking. Founders must have the abilities to speak in front of a live audience during
pitch competitions.
13. Fund Raising. They should also be able to seek external funding from potential investors.
Experience, Network, Knowledge and Skills
Given those tasks that startups must accomplish, a team must have the needed experience, network,
knowledge and skills to execute those tasks.
1. Experience. The team must have the experience or the ability to learn technical skills to design
and build products.
2. Network. They need to have a vast network of connections who are possible partners, mentors
or investors. They need their network to build a market for their product and support from
investors to fund their startup.
3. Knowledge.Theyneedtohaveknowledgeorbackgroundabouttheindustryorthe market that they
are entering into because they need to know who the market is, where the market is, how big
the market is, and who competitors in the market are.
4. Skills or Strengths. These are other qualities that a team member can have together with any
of the above mentioned qualities.
a. Leadership. It is the ability to lead the team towards a certain goal.
b. Team player. It is the ability to work harmoniously with your team mates.
c. Project Management. The ability to identify project scope, project cost and project
schedule to achieve a goal.
d. Strategy. The ability to create plans or strategize to achieve a goal.
e. Execution. The ability to execute the plans.
f. UI/UX Design. The ability to translate customer needs into user interface and/or user
experience design.
g. Public Speaking. The ability to speak in a live audience.
h. Influence. The ability to convince people to buy your products, join your team or invest
in your startup.
Types of Team Formation
There are three ways three ways to form a team, according to UC Berkeley: Team-centric Startup
Formation, Research-centric Startup Formation and Market Opportunity-centric Startup Formation.
In a Team-centric Startup Formation, you build your team from your existing network. You invite
people you highly trust to join you on this endeavor. You look for people in your network who have
the experience and knowledge you need to start a business.
Another way to form a startup team is through Research-centric Startup Formation. In this type of
team building, you encourage your co-researchers to establish a startup and bring your research outputs
to the market. Initially, this team is highly technical in experience.
Lastly, we have the Market Opportunity-centric Startup Formation where teams are formed or created
during a hackathon or a competition. People of the same interest gather in one place, meet each other
and realize that they have a lot of things in common. They usually have the same passion about things
that they would want to solve.
Whichever team formation was used, what is really important is that your team must be diverse in
terms of technical experience, network, knowledge and skills.
The Three Sides of Team Diversity
There are three sides of team diversity that was coined during an entrepreneurship seminar by UC
Berkeley: Business Function, Roles and the Silicon Valley Triptych.
In the business function side of diversity, the team needs:
1. A Strategist who knows how to create a business plan and analyze the market,
2. A Designer who designs user experience and user interfaces,
3. A Builder or an Engineer who develops prototypes,
4. A Sales/Marketing expert who knows how to attract engage customers,
5. And lastly, a Project Manager that assigns tasks to each member and oversees all of the
activities inside the startup.
Another side of team diversity are Roles to play:
1. The Idea Guy who always have fresh ideas in mind,

2. The Communicator who has special facilitation skills in the team,
3. The Peacemaker who maintains harmonious relationship of the members,
4. The Problem-finder who can spot challenges or problems before they occur,
5. the Problem-solver who is always eager to take on any challenge and solve problems,
6. and an Executor who can swiftly finish any assigned tasks.
Lastly, we have the Silicon Valley Triptych. This is very common in Silicon Valley. Here we need:
1. a Hustler who sells the product or seeks investment,

2. a Hacker who builds the product,
3. And a Hipster who designs the product.
Sometimes, a fourth member is added:
4. A Hound who initially talks to customers and does market research.
Team Building Begins in You
When you are trying to build a team or join a team, make sure that you already know what you're
bringing into the team. So before engaging with anyone, try to answer these questions to help you
evaluate yourself.
1. What are your strongest skills?

2. What are your weaknesses?
3. What are your key interests?
4. What are your personality quirks?
5. What is your risk profile?
Topic Outcome
- Apply entrepreneurial mindset needed for the course
I. MINDSETTING
Silicon Valley
Silicon Valley, a highly technological and innovative region in California, U.S., is the birthplace of
many of our successful brands--Google, Apple, Microsoft and Hewlett- Packard (HP). Its name was
derived from the Silicon material used to manufacture semiconductors by the electronics and computer
companies there.
Silicon Valley is also home to Stanford University, one of US’ top universities in terms of research
and innovation. In 1951, it established the Stanford Industrial (now Research) Park where different
tech companies can lease university land in long-term. It was a highly sought-after space where
companies hire Stanford’s best students, industry practitioners teach courses in Stanford and
professors are consulted by these companies. Now, this 700-acre research park is home to over 150
companies including Hewlett-Packard, SAP, Skype, Tesla Motors and VMWare.
Long before computers become household appliances, the culture in Silicon Valley was to establish
Startups.
Startup
A Startup is a company in the initial business stage. It is focused on solving a specific problem of a
specific market using innovative approaches. It is usually financed by its founders and is still seeking
external investments. Depending on its network, it can be funded by angel investors, venture
capitalists, crowdfunding, credit or even family and friends.
As there are numerous successful companies which began as startups--Airbnb, Facebook, Uber and
SpaceX--chances that a startup may fail in its first year is very high.
According to Forbes, there are 20 reasons why startups fail. Almost half of these reasons are related
to customers. Failure to involve the customers at the very beginning, not listening to their feedback,
not meeting their needs, and ignoring them is a recipe for a startup failure.
Seven out of these 20 reasons are related to the people inside the organization. Not having the right
people to build the MVP* or to create a sustainable business leads to startup failure.
Surprisingly, only two of these 20 reasons are related to money or the lack of it. Which proves that
business may not really be about making money, but about making human connections. Founders
making strong connections with their co-founders and people inside the organization and the startup
making good connections with their customers and partners.
*Minimum Viable Product or MVP is a development technique in which a new product is introduced in the market with
basic features, but enough to get the attention of the consumers. The final product is released in the market only after
getting sufficient feedback from the product's initial users.
Four (4) Founders Mindset
Carlo Valencia, Founder and Facilitator at Startup PH Training, coined Four (4) Founder Mindsets
that every newbie entrepreneur must learn in order to succeed with their startup:
1. Find Users / Customers Before Building
2. Founders don’t have plans to execute, they have assumptions to test
3.Everything is an experiment, and
4. You will fail.
Find Users / Customers Before Building
Founders must identify who their customers or users are, what their needs or problems are, and
how they can be engaged. Customers pay for the products and services of the startup, while Users
don’t pay for the products and services of the startup. A good example would be a child asking
his or her mother to buy a toy. The mother is the customer who pays for the toy and the child is
the user who plays with the toy. Founders also need to understand the needs and problems of their
customers or users. Understanding the problem or need can help the founders identify and build a
solution.
Founders don’t have plans to execute, they have assumptions to test
Traditional business owners would have already known what to do, what works and what not. But
for entrepreneurs who are trying to propose a solution to a problem that people have never seen
before, it will always be a constant search for the right plan to execute it. And since startups can
face many uncertainties along the process, founders must be well experienced with their craft to
overcome those obstacles.
Everything is an experiment
Eric Ries, an American entrepreneur, coined 5 Principles of Lean Startup. One of which is the
Build-Measure-Learn feedback loop, which is the core of the Lean Startup methodology.
After the founders have identified a problem and have come up with ideas to solve that problem,
the team must BUILD a Minimum Viable Product or MVP to validate these ideas. The Minimum
Viable Product is that version of a new product a team uses to collect the maximum amount of
validated learning about customers with the least effort. It can be an explainer video, a PowerPoint
presentation, a prototype built using inexpensive materials, a storyboard or a role play.
When the team has ensured all essential features are already present in the MVP, the team can
now test its MVP by showing it to the intended customers and get feedback through any technique.
At this point, the team will MEASURE the results and it with their initial hypotheses. Here, they
will get insights if their solution solves the identified problem, which feature works well with the
customers or not.
Whatever feedback they get from the customers, the team will LEARN something from that
experiment and can make an informed decision whether to pursue the idea and make
improvements on their next BUILD or totally change the idea and BUILD a new MVP.
You will fail
Always remember that there is no undefeated in Innovation and Entrepreneurship. Every

successful company we have now has failed hundred times before and they are successful now
because they didn’t quit during those down times. Founders must be physically, mentally and
emotionally strong to face these obstacles and overcome them. Founders should be afraid to fail.
Failure is part of the process.
Fixed Mindset vs Growth Mindset
On another perspective, Carol Dweck wrote in her book, Mindset: The New Psychology of Success,
the theory of the two mindsets and their differences in terms of outcomes: Fixed Mindset and Growth
Mindset.
According to her, people with Fixed Mindset have special qualities that are not cultivated, and never
improved. They don’t take tasks with high risk of failure because they are afraid of failure. And
because they are afraid of failure, they see setbacks as a very high wall which they don’t try to
crossover.
On the other hand, people with Growth Mindset like to take on new challenges. They are very
persistent and see effort as a way to master their craft and improve their special qualities. They are not
afraid of failure or rejection from other people. They even like to hear criticisms as these may improve
them. These people are often inspired by others’ success and aspire to become one of these successful
people.
This Growth Mindset is what we believe Startup Founders should have, always ready for the challenge
and never giving up no matter how hard times can be for their team.
Design Thinking Mindset
Design Thinking is a human-centered approach of solving problems. Over the years, this design
process has been taught to students, faculty members and other stakeholders to help them create better
solutions with their identified problems. Using Design Thinking in re-shaping how we solve problems
encourages the participants to be human-centered, collaborative, optimistic and experimental.
For someone to have a Design Thinking mindset, one must deeply understand the needs of the people,
effectively work with diverse people with different perspectives, persistent to create a change in spite
of many obstacles, and never be afraid of making mistakes and failures.
The Design Thinking Framework has 5 phases: Empathy, Define, Ideate, Prototype and Test. It is an
iterative process where founders can go back to a specific phase after the Test Phase whenever
necessary.
Two Mindsets by Carol S. Dweck, Ph.D
Empathy
At this phase, founders identify who their target customers are and try to understand their
needs. Founders must be able to identify what tasks their customers do, what challenges the
customers experience while doing those tasks and how the customers solve or overcome those
challenges. They should go out where their customers are and try to experience firsthand those
routines. Interviewing customers will also greatly help with understanding what motivates their
customers to do those tasks, how they do it, and if there are challenges identified, where and
when do these challenges occur. These insights about their customers will help improve their
assumptions about their customers and create a persona of who their customers are. These
understandings are vital for the next phases.
Define
After interviewing customers and immersing in the environment where their customers do
those tasks, founders will create a Customer Persona where they will define goals and
aspirations of their customers and describe their customers’ motivations, frustrations and
personal beliefs. These insights will founders create a customer journey and where in that
journey do challenges occur.
Ideate
Using the insights about the customers, the customer journey and the challenges they
experience, the founders can brainstorm and generate as many ideas as possible that can help
solve those challenges. Each member of the team is encouraged to contribute ideas.
After the brainstorming activity, each team member must provide feedback on each idea
presented and discuss with the team what he or she likes about that idea. The goal is to collect
the good ideas they all believe can solve the problem. Towards the end of the phase, they will
be able to agree on what ideas they would want to build and test with the customers.
Prototype
The chosen ideas from the Ideation phase will be built or prototyped using inexpensive
materials. The team can build their prototypes using papers, cardboards, glues, tapes or even
role play the idea. The goal is to quickly build a tangible prototype that they can easily bring
to their customers to get feedback.
Test
At this phase, the founders will show to the customers the developed prototypes. Without
spending much with the prototypes, the founders will be able to have their customers
experience using the prototypes and get feedback about what they like about them, what they
don’t like about them and if they are given the chance to redesign the prototypes, how will they
differ.
The results of the Test Phase will determine whether to pursue the idea or pivot to a new idea.
Either way, the founders are learning more about their customers and how they can solve their
problems.

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TECHNOPRENEURSHIP – ENGG 405 MODULE 12

ACCOUNTING AND FINANCIALS

A. Accounting for Startups

Good Accounting Starts with Great Systems

The bottom line

B. Financial Projections for Ventures

What Are Financial Projections?

What Are Financial Projections Used For?

7 Steps to Building a Financial Projection for Your Startup or Small Business

1. Create a sales forecast.

2. Create an expense budget.

3. Create the income statement projection.

4. Create the cash flow projection.

5. Create the balance sheet projection.

6. Use projections for planning.

Benefits of Using Accounting and Planning Software for Financial Projections

C. Legal Structure of Ventures

What Legal Structure Is Best for Your Business?

4 Types of Legal Structures for Business:

Taxation: A sole Proprietorship has pass-through taxation. The business

Pros of a Sole Proprietorship:

Cons of a Sole Proprietorship:

An association between two or more people in business seeking a profit.

Taxation: A partnership is a tax-reporting entity, not a tax paying entity. A

Pros of General Partnerships:

Cons of General Partnerships:

3. Limited Liability Company (LLC)

A hybrid between a corporation, general partnership, and sole

Taxation: An LLC is considered a “pass through entity” for tax purposes.

Pros of LLC Structure:

Cons of LLC Structure:

4. Corporations (C-Corp and S-Corp)

Corporations are the most complex business structure. A corporation is a

- Explore and apply project management principles and methods

Project Management Principles and Techniques

2. Vision and Mission

3. Business Objectives and Goals

6. Scheduling and Estimation

7. Elucidating Roles and Responsibilities

1. Program Management level

10. Learning From Experience

In the current technology-driven world, organizations move to implement project management

11. Project Sponsor

12. Manage by Exception

13. Manage by Stages

14. Customizable to Suit the Project Environment

Devising project management framework or methodologies implies having a thorough understanding

15. Measurement and Accountability

MARKETING AND SALES

What to Include in the Marketing & Sales Strategies Section

Here are the 5 P’s of marketing:

Important Considerations in Sales and Marketing Venture Idea

1. Sell the benefit, not a comparison.

2. Listen to your customer.

3. Market your product before it’s ready.

4. Think outside the box.

5.Test fast. Fail fast.

6. Advertise from multiple angles.

7. It’s always time for PR.