ENT 131 Module Outline & Notes
ENT 131 Module Outline & Notes
ENT 131 Module Outline & Notes
PART A
1. Introduction
2. Creativity and Innovation
3. Identifying and Evaluating Entrepreneurial Opportunities
PART B
PART C
PART D
PART E
The key to being competitive is staying ahead of the competition. That means
coming up faster with more competitive products and services than the
competition. The problem that every organization—be it public or private, profit
or nonprofit, product or services—has is a need to have more innovative ideas
effectively implemented.
exhibit curiosity
are future-orientated
There are several smaller steps leaders can take to make a big change on their
organization. Here are five ways you can foster creativity within your own
team:
1. Reward Creativity
With creativity can also come burnout. Employees need time to step back
and hit the refresh button. Companies do need to take burnout into
consideration
Defining innovation
If you use the first definition of innovation, almost all organizations are
innovative organizations. If you use the second definition of innovation, less
than 5% of the organizations could be considered innovative. More than 95% of
the new and unique ideas that are generated within most organizations never
complete the consumer to deliverables cycle and produce a profit for the
organization.
Innovate vs create
• The difference between creativity and innovation is that the output from
the innovation has to be a value-added output, while the output from
creativity does not have to be value added.
3. An innovator is a person who has the capability to create unique ideas and
has the entrepreneurship to turn these ideas into output that is marketed.
4. An innovator is a person who creates a unique idea and uses the facilities
available to produce an output that is marketable.
Definitions interpretation
TYPES OF INNOVATION
Innovation
# Description
Type
Product
5. Distinguishing features and functionality
Performance
Product
6. Complementary products and services
System
Customer
10. Distinctive interactions you foster
Engagement
Innovation vs Invention
Source Description
Raw creativity and an affinity for lateral thinking may be innate, but creative
people must refine these skills in order to become masters in their respective
fields. They practice in order to apply their skills readily and consistently, and
to integrate them with other thought processes and emotions. Anyone can
improve in creative efforts with practice. For our purposes, practice is a model
for applied creativity that is derived from an entrepreneurial approach. It
requires:
Preparation
Incubation
Insight
Evaluation
Elaboration
The last stage in the creative process is elaboration, that is, actual production.
Elaboration can involve the release of a minimum viable product (MVP). This
version of your invention may not be polished or complete, but it should
function well enough that you can begin to market it while still elaborating on it
in an iterative development process. Elaboration also can involve the
development and launch of a prototype, the release of a software beta, or the
production of some piece of artistic work for sale. Many consumer-product
companies, such as Johnson & Johnson or Procter & Gamble, will establish a
small test market to garner feedback and evaluations of new products from
actual customers. These insights can give the company valuable information
that can help make the product or service as successful as possible.
At this stage what matters most in the entrepreneurial creative process is that the
work becomes available to the public so that they have a chance to adopt it.
That is, you have to wait for a problem to happen in order to recognize the need
to solve the problem. Solving problems is an important part of the practice of
innovation, but to elevate the practice and the field, innovators should anticipate
problems and strive to prevent them. In many cases, they create systems for
continuous improvement, which Myler notes may involve “breaking” previous
systems that seem to function perfectly well. Striving for continuous
improvement helps innovators stay ahead of market changes. Thus, they have
products ready for emerging markets, rather than developing projects that chase
change, which can occur constantly in some tech-driven fields. One issue with
building a system for constant improvement is that you are in essence creating
problems in order to solve them, which goes against established culture in many
firms. Innovators look for organizations that can handle purposeful innovation,
or they attempt to start them. Some innovators even have the goal of innovating
far ahead into the future, beyond current capacities. In order to do this, Myler
suggests bringing people of disparate experiential backgrounds with different
expertise together. These relationships are not guarantees of successful
innovation, but such groups can generate ideas independent of institutional
inertia. Thus, innovators are problem solvers but also can work with forms of
problem creation and problem imagination. They tackle problems that have yet
to exist in order to solve them ahead of time.
Deep
Deep products are based on the logic of innovation that we’ve just established
and anticipate users’ needs before they have them. These types of innovations
often have masterful designs that are intuitive for new users while still being
capable of completing complex tasks. Adobe is an innovative corporation
working in several fields, such as software, marketing, and artificial
intelligence. Adobe often creates software applications with basic functions that
are easily accessible to new users but that also enable experienced users to
innovate on their own. Creating a platform for innovation is a hallmark of deep,
forward-thinking innovation.
Indulgent
Innovations with lasting power engage users in ways that make them feel
special for having purchased the product or for having found the
service. Indulgence refers to a depth of quality that does not come from being
the fastest solution to a problem. Indulgence may even sound like a negative
trait. In humans, it certainly can be, but for someone using an innovative
product, feeling indulgent can relate to a richness of experience with the user
interface (UI). The UI of a product, particularly a software product, is what the
user sees and interacts with. A feeling of indulgence imbues your product with a
sense of value and durability that reassures users and encourages them to use
your product confidently.
Complete
Elegant
Emotive
Emotive innovations evoke the intended emotion and demand to be admired and
shared. In other words, truly great innovations create fandoms, not just
consumer bases. You can’t force people to love your product, but you can give
them experiences that create a sense of excitement and anticipation of what you
might come up with next.
Methods of protecting Innovation and creativity
Branding.
Trademarks.
Patents.
Copyrights.
Macro Level
Michel Porter identified five forces to determine the overall profitability of any
industry as; threat of entry; buyer power; supplier power; threat of substitute
and competitive rivalry.
The aspiring entrepreneur first identifies what industry his or her business will
be in. The entrepreneur then asks a series of questions about each of the five
forces to determine whether that force is favourable or unfavourable on balance.
The more forces that are favourable, the more attractive the industry and vice
versa.
Once all five forces have been assessed, the key outcome is to reach a clear
conclusion about the attractiveness of your industry. This step is crucial to the
overall assessment of your opportunity.
Micro Level
Identifying and assessing the competitive and economic sustainability of the
proposed venture is necessary to fill in the micro-level industry piece of the
opportunity assessment puzzle. Assessing the sustainability of the proposed
venture requires examining, in relationship to its competitors, the proposed
venture itself- whether a new firm or a venture within an existing firm. The goal
is to determine whether certain factors are present that would enhance the
ability of the venture to sustain any advantage that it might have at the outset,
without quickly running out of cash. These competitive and economic factors
are the following:
The presence of proprietary elements- patents, trade secrets that other firms are
unable to duplicate.
The likely presence of superior organisational processes, capabilities or
resources that other would have difficulty duplicating or imitating.
The presence of an economically sustainable business model- one that won’t
quickly run out of cash. This factor, in turn, involves a careful look at some
more detailed issues:
Revenue, in relation to the capital investments required and margins obtainable;
Customer acquisition and retention costs, and the time it will take to obtain
customers;
Contribution margins and their adequacy to cover the necessary fixed cost
structure to operate the business;
Operating cash cycle characteristics, that is, how much cash must be tied up in
working capital such as inventory, how quickly customers will pay, and how
slowly suppliers and employees can be paid, in relation to the margins the
business generates.
Can the Team Deliver?
There are three elements relating to the entrepreneurial team. Examining these
elements is necessary in order to complete the opportunity assessment task.
Does the opportunity fit the team’s business mission, personal aspirations and
risk propensity, and does all of that align with that of a prospective investor?
Does the team have what it takes, in a human sense- in experience and industry
know-how- to deliver superior performance for this particular opportunity,
given its critical success factors, that is those factors that done right, almost
guarantee superior performance, even if other things aren’t done so well or done
wrong, will have severely negative effects on performance regardless of doing
other things right?
Is the team well connected up, down and across the value chain so it will be
quick to notice any opportunity or need to change its approach if conditions
warrant?
The Team’s Business Mission, Personal Aspirations and Risk Propensity
Individual entrepreneurs and investors come to the opportunity assessment task
with certain preconceived preferences, often defined in terms of:
Markets they wish to serve;
Industries in which they are willing to compete;
Their own aspirations;
Risks they are willing to undertake.
Opportunities that do not match these preferences will be seen as unattractive.
The Team’s Ability to Execute on the Critical Success Factors
The backgrounds and prior experiences brought to the venture by particular
entrepreneurs make them better able to execute on some critical success factors
than on others. Understanding the critical success factors relevant to a particular
opportunity and the industry within which it will compete and matching them
against the team’s ability to perform on them is one of the most compelling
aspects investors consider when assessing opportunities.
Entrepreneurs who fail to assess accurately whether they and their team what it
takes to execute on the critical success factors they will face take a huge
personal risk- beyond the business risk they already take- if they seek external
capital.
The Team’s Connectedness Up, Down, Across the Value Chain
The ability to combine tenacity with a willingness to change course- sometimes
due to changes in the market place, fortuitous or others can make all the
difference. Entrepreneurial teams should ask how connected they are, both up
and down the value chain- with suppliers and customers and across their
industry to address this concern. How can they get connected if they are not?
One partial answer: network.
By assessing themselves with respect to the three elements as part of their
broader opportunity assessment efforts, entrepreneurial teams gain in three
ways.
If the team needs to be strengthened to better suit an otherwise promising
opportunity, the best time to do so is before getting started. Doing this early
enables the venture to benefit from the talents, insights and perspectives of the
team’s new members from square one.
Viewing investors as part of the team also builds trust and can reduce the risk
investors perceive in the venture, since many investors like to help build the
team. Entrepreneurs who are willing to admit they don’t have all the skills
required often rate highly with the investor community.
If external funding is to be sought, then pitching an inadequate team is not only
likely to be successful but also undermines the credibility and reputation of the
team members, thereby hampering their ability to raise capital in the future. Get
the right team first, then pitch. You’ll need to make a convincing case that the
team will be able to deliver the results it seeks and those it promises to investors
and other stakeholders.
Start-Up Investment
Start-up investment or seed capital is the one-time0 expense of opening a
business. In a restaurant, for example, start-up expenses would include stoves,
refrigeration, utensils, tables, chairs and other items that would not be replaced
often. Also included might be the cost of buying land and constructing the
building or the cost of renovating an existing space. Some entrepreneurs also
choose to consider the time they put into getting their business off the ground as
part of the start-up investment. To do so, place a value on your time per hour
and multiply by the number of hours you think you will need to get your
business going.
For a …, the start-up investment might look like this:
Beginning inventory
Business Cards and Flyers
Business Licenses
Hot dog cart
Cashbox and other
Total investment without contingency
Contingency @10% of start-up investment
Total start-up investment with contingency
For a more complex business like a franchise, the items would be broken down
into greater detail in order to secure quotations or prices. For example, each
piece of equipment would be identified and a quote secured.
For a manufacturing business, developing a prototype for the item being
manufactured may be a major start-up cost. A prototype is a model or pattern
that serves as an example of how a product would look like and operate if it
were manufactured.
Before starting your business, try to anticipate every possible cost by analysing
all components and possibilities. Talk to others in your industry and ask them
what start-up costs they failed to anticipate. Research industry information and
obtain quotations from potential suppliers.
Start-up Investment checklist
Item/Category Cost Explanation/Note
Land and Building (if constructing or purchasing)
Equipment and machinery
Furniture and fixtures
Leasehold improvements (if renting)
Installation of equipment and fixtures
Computers and other technology
Employee wages, salaries and benefits
Owner time (valued at $- per hour)
Professional services (attorney, accountant etc
Promotions and advertising
Licenses and permits
Deposits on rent and utilities
Rent
Utilities
Insurance
Debt service
Taxes
Memberships (trade associations, chambers of
commerce etc
Registration fees
Trainings, conventions and seminars
Licensing or franchise fees
Financing costs and fees
Supplies
Inventory
Petty cash
Total pre-opening investment
Allowance for contingencies/emergencies (10%)
Initial investment
When compiling and analysing start-up costs, one consideration will be on how
long it will take for you to earn back your start-up investment. The payback
period is an estimate of how long it will take your business to generate enough
cash to cover the start-up costs. It is measured in months.
Payback= start-up investment
Net cash flow per month
Knowing the payback period is important for a firm, so that the time horizon is
known and timing of funds availability is clear. However, the payback period
does not take into consideration future earnings, opportunities for alternative
investments or the overall value of the company. It is based on net cash and is a
good indicator of the time needed to earn back initial disbursements.
The Cost Model
Fixed and variable costs
Small business owners divide their costs into two categories. Variable costs
change based on the volume of units sold or produced. Fixed costs are expenses
that must be paid regardless of whether sales are being generated.
Variable costs change with production and sales. They fall into two
subcategories:
1. Cost of Goods Sold (COGS) or Cost of Services sold (COSS) each is
associated specifically with a single unit of sale including:
The cost of materials used to make the product (or deliver the service)
The cost of labour used to make the product (or deliver the service)
2. Other variable costs, including:
Commissions or other compensation based on sales volume
Transport and handling charges
Fixed costs stay constant over a range of productions, whether you sell
many units or very few. Examples of fixed costs include rent, salaries,
insurance, equipment and manufacturing facilities.
For any product, you can study its economics of one unit (EOU) to figure
out what it costs to make that sale.
Manufacturing Business Unit = 1 Hand-Painted T-Shirt
Economics of One Unit (EOU) Analysis
(Define unit of Sale)
Selling price (per unit) $35.00
COGS (Cost of Goods
Sold)
Materials per unit $7.00
Labour per hour $10.00
# of hours per unit 0.75
Total labour per unit 7.50 7.50
Total COGS (per unit) $14.50 14.50 14.50
Gross Profit (per unit) $20.50
Other variable costs
Commission (10%) 3.50
Packaging 0.50
Total other variable $4.00 4.00 4.00
Costs
Total variable costs (per $18.50
unit)
Contribution margin $16.50
Rather than make separate EOUs, you can use the average cost of your four
types of sweets.
Costs of the four types of sweets= ($0.36+$0.38+$0.42+$0.44)/4
Average cost of the four types of sweets =$1.60/4
Average cost of each sweet =$0.40
Using a simple average works as long as you sell roughly the same number of
each brand of sweets. If you can no longer get chocolate and almond at some
point, for example, you should then change your EOU to reflect the higher
prices of the other two types of sweets.
Fixed Operating Costs
Costs that do not vary per unit of production or service, such as rent are called
fixed operating costs. Total fixed costs do not change based on volume. Fixed
costs per unit decreases as the number of units increases.
Fixed operating costs do not change based on sales activity levels; therefore,
they are not included in the EOU. A hamburger shop has to pay the same rent
each month whether it sells one hamburger or a hundred. However the owner of
the shop can change the cost of the rent by moving or can increase or decrease
the advertising budget. These changes are not calculated on a per unit basis.
It is easier to remember several of the most common categories of fixed
expenses by remembering the phrase: I SAID U R + Other FXs
This stands for
Insurance
Salaries (indirect labour- managers, office staff, sales force)
Advertising
Interest
Depreciation
Utilities (gas, electricity, internet access)
Rent
Other Fixed expenses
What are the sources of revenue for your business? What are your value
offerings?
Financing is not a one size fits all proposition. Each venture has unique
requirements and circumstances, along with the structure and challenges of the
selected industry. For some businesses, such as restaurants, standard
commercial loans may not be an option because commercial lenders see them as
too risky and are not willing to make them. For others, such as research based
technology firms, equity will be needed. Regardless of your preferences and the
types of financing available, you will invariably have to be the first investor in
your business. Lenders and investors alike insist that entrepreneurs have their
personal resources involved before they put in additional funding. It is easier to
persist and work hard when you have a personal financial stake in success. If
putting your personal assets at risk is not something you are willing to do,
expect to be rejected by investors and lenders.
Your risk tolerance, meaning the amount of risk (threat of loss) you are willing
to sustain, will also help to define possible financing options. For example if
you own assets and are seeking a commercial loan, you will likely have to put it
up as security (collateral), in case you cannot repay the debt. Or, if you are
giving up ownership through equity, you may have to give up control of the
company you founded to your investors so that you can obtain needed financial
resources. Be prepared to face these types of decisions as you seek financing
that works.
There are three ways for a business to raise the capital it needs to grow.
1. Finance with earnings. If a company is profitable and has positive cash
flow, it can use some of its profits to finance expansion. This will help
ensure that the company does not take on too much debt or grow more
quickly than its finance can handle.
2. Finance with equity. If a company is incorporated, it can sell stock
privately or on the stock market, to raise capital. People who purchase
shares of stock are getting equity. Other types of businesses may also
have equity investors.
3. Finance with debt. Any type of business, depending on its
creditworthiness and that of its owners, can borrow money. An
incorporated company can also sell bonds, although it is difficult and
cost- prohibitive for small businesses to do so. People who purchase
bonds will receive interest on the loan they are making to the company,
with repayment of the principal in a lump sum at maturity.
Debt Financing
Some businesses have a combination of debt and equity financing. One
challenge you may face is determining what type of debt financing to pursue,
based on your business type and life-cycle stage, your personal finances, wealth,
preferences and the options available to you. Before pursuing debt for your
business, calculate your personal net worth by tallying your assets (i.e cash,
investment accounts, personal property, real estate and its intangibles) and
subtracting your debts (i.e credit balances, vehicle loans, student loans,
mortgages and other loans). Your lenders will want to know what you own,
what you owe and what your business finances are.
Debt financing comes in many forms, with widely varying repayment and
qualification terms. Different types of lenders will have various rates and fees,
so it’s worthwhile to compare the total package costs.
Debt Financing: Pros and Cons
To finance through debt, the entrepreneur applies to and contracts with a person
or an institution that has money, borrows it, signing a promissory note, a
document agreeing to repay a certain sum of money (with interest) by a
specified date.
Interest is determined as a percentage of the loan principal. The principal is the
amount of the loan or outstanding balance on the loan amount, not including
interest. Typically, the borrower makes monthly payments until the loan is fully
paid. The term, or length, of the loan generally depends on what is being
financed, with working capital having the shortest term and real estate the
longest.
The lender essentially has no say in the operations of the business, as long as the
loan payments are made on time and loan terms are met. The lender will have a
say in how the funds are initially disbursed and may set restrictions. The
payments are predictable, although they may vary with changes in key interest
rate measures, if the interest rate is variable rather than fixed. If the loan
payments are not made in a timely way, the lender can force the business into
liquidation or bankruptcy, even if that loan balance is only a fraction of what the
business is worth. Also the lender can take the home and personal possessions
of the owner, depending on the agreement.
Debt should be carefully considered by the beginning entrepreneur because it
often takes time for the new business to generate cash flow for repayment. One
risk of debt is that failure to make payments can destroy the business before it
can generate positive cash flow.
Debt Advantages
The lender has no say in the management or direction of the business, as long as
the loan payments are made and the contracts are not violated.
Loan payments are predictable; they do not change with the fortunes of the
business.
Loan payments can be set up so that they are matched with the seasonal sales of
the business.
Lenders do not share in the business profits.
Debt Disadvantages
If loan payments are not made, the lender can force the business into
bankruptcy.
The lender can take the home and possessions of the owner to settle a debt in
case of default- when the borrower fails to meet the repayment agreement.
Debt payments increase in a business’s fixed costs, thereby lowering profits.
Repayment reduces available cash.
Lenders expect regular financial reporting and compliance with the loan
contracts.
Equity financing
Equity means that in return for money an investor will receive a percentage of
ownership in a company. For a $120,000 investment in the company, an equity
investor might want 10% ownership, which would mean 10%of the business
profits. This would indicate that the business was valued at $1.2 million. The
investor is hoping that 10% of the profits will provide a high rate of return, over
time, on the initial investment of $120,000.
Equity Financing: Pros and Cons
The equity investor assumes greater risk than the lender. If the business does not
make a profit, neither does the investor. The equity investor cannot force the
business into bankruptcy to get back the investment. If creditors force a
business into bankruptcy, equity investors have a claim on whatever is left over
after the debt lenders have been paid. However, the potential for return is also
higher. The equity investor should make an investment back many times over if
the business prospers.
Money raised via equity does not have to be paid unless the business is
successful. Equity investors may offer helpful advice and provide valuable
contacts. However, if the entrepreneur gives up more than 50% ownership,
control of the business may be taken by the equity holders. Even with less than
half the ownership, investors may assert managerial influence.
Equity Advantages
If the business does not make a profit, the investor does not get paid.
There are no required regular payments in the form of principal or interest and
dividends for common stockholders are distributed at the discretion of the board
of directors.
The equity investor cannot force the business into bankruptcy in order to recoup
the investment.
The equity investor has an interest in seeing the business succeed and may,
therefore, offer helpful advice and provide valuable contacts.
Equity Disadvantages
Through giving up too much ownership, the entrepreneur could lose control of
the business to the equity holders.
Even with small amounts of equity, investors may interfere with the business
via unsolicited advice and or continuous enquiries.
Equity financing is riskier for the investor, so she frequently wants both to be
able to influence how the company is run and to receive higher rate of return
than the lender.
The entrepreneur must share profits with other equity investors.
Key Partners
Key Activities
Customer relationships
Revenue streams
Key Resources
What key resources do our value propositions require?
Customer relationships
Revenues streams
Value proposition
Customer Relationships
How are they integrated with the rest of our business model?
Customer Segments
Channel phases
Revenue Streams
What are the most important costs inherent in our business model?
Is your business more cost driven (leanest cost structure, low price value
proposition, maximum atomization, extensive outsource); value driven (focused
on value creation, premium value proposition)
Things you should consider during developing the market entry strategy
Ultimately companies must try new things and take risks to flourish — that is the
nature of entrepreneurship. If you break the daunting project of new market entry
into a rational step by step process, it is much easier to see the whole picture and
avoid failure. Start by gaining a thorough understanding of the new market,
ensure that you have sufficient internal capabilities, and do not be discouraged
by losing small battles along the way.
We honor the business achievements of our clients and put our backs into their
cases. On average, the creation of the digital market entry strategy costs
$6,000. But the price depends on the size of your business, your business aims,
and your target market. I can assure you that the results of the strategy will
impress you.
A new market can provide new sources of revenue, higher ROI (Returns on
Investments), and secure long-term success for a business. The digital strategy
can even easier to reach out to the world for business.
One more point to remember, you cannot sell your product to everyone. If you
try to make a product that meets everyone’s needs, that product does not appeal
to any particular group of consumers. Also, trying to please everyone will almost
certainly cause you to panic and be overwhelmed by all the demands you try to
satisfy. Do not fall into that trap.
Which market entry strategy is the best to choose?
This strategy is appropriate if you run or if you want to run a prosperous online
business. The main advantage of it is that you do not need to open new offline
offices. On the initial stage, you have to conduct the online market research,
create a step-by-step strategy, develop a website or a mobile application (both
can be even effective), and set up digital advertising. With this method, you can
save investments and put them into the promotion of your brand on the new
market.
Market Types
A market type is a way a given group of consumers and producers interact,
based on the context determined by the readiness of consumers to understand
the product, the complexity of the product; how big is the existing market and
how much it can potentially expand in the future.
Market types will influence the whole organizational structure, the funding
needed and the strategy adopted to enter or sustain a business in the marketplace
Professor Steve Blank helps us with a simpler definition of markets, also more
in line with the kind of context often start-ups have to deal with.
You can read the full guide on the market types below. In the next paragraphs,
we’ll see how to tackle each market and what entry strategy you can use.
Identifying a niche, is a key element to get started with a small set of potential
customers able to give you feedback as you grow. Sometimes whether to start
from a niche or micro niche is a matter of understanding how competitive and
saturated is an existing market. As a rule of thumb, a market that is extremely
saturated will require you to drill it down until you find the smallest customer
base to kick off your business. For instance, if you’re starting today an online
bookstore, sure you can start by making it the “everything store” ( that seems it
was already invented two decades ago and it is called “Amazon”) but that might
be soon doomed to failure.
Instead, you want to be very specific. Something like, “I’ll start an online
bookstore with the most curated books you can find about biographies from
entrepreneurs of the 18th century.” There might be a few thousand people
across the world, interested in that. But those few thousand people are ready to
become your raving fans and customers
Yet opening up a new market, not only is a risky move, but if that market holds
up, new companies might quickly replicate what you’re doing, thus making
your first-mover advantage turn in their favor (Google was a latecomer in
search, and so Facebook was a latecomer in social media).
But how do you enter (actually create and define) a new market? In that case,
it’s all about finding the commercial use case, which is initially big enough
either to develop an initial, potential customer base (made mostly
of innovators).
In this case, it makes sense to look for funding, because, potential investors can
validate your idea in the first place (if they’re willing to put money it might be
the first sign of a potentially worth it commercial application).
Or ask “is there a way for me to test the idea without making it technically
complex?”
For instance, let’s say your idea is to start a software company, yet developing
that would require hundreds of thousands of dollars.
What if you develop a simple App instead? Costing a tenth of that, developed in
a tenth of the time, yet a good starting point to understand whether the idea is
commercially viable at that moment (what’s not commercially viable today
might be so in the future)?
That would give you the option to expand the project (and its technical
requirements) and ask for funding based on a concrete idea backed up by data
from potential customers.
Key takeaways
As the story goes, in 2007, Brian Chesky and Joe Gebbia couldn’t afford the
rent on their San Francisco apartment that is why they decided to transform
their loft in a lodging space.
Yet instead of relying on Craiglist, they built their site, which they
called Airbed & Breakfast and leveraged on Craigslist to drive users back to
their website,
To be sure, Airbnb didn’t just gain visibility on Craigslist. Instead, it surfed the
site to push its platform. A platform business model to take off run into the so-
called chicken and egg problem.
In short, a platform differently from a linear business, to gain initial traction has
to kick off its operations on often different sides. For instance, for Airbnb, it
was critical to enhance the listings available on the platform to make it valuable
for users, and vice versa.
The more users joined, the more it would attract listings. Where to start? Back
in 2010, Airbnb figured a mechanism and automation that enabled listings on
the platform to be reposted on Craigslist, thus generating substantial traffic.
In addition, those who searched for listings on Airbnb were users looking for
alternatives to Hotels, so a great target. By using this initial strategy Airbnb
managed to solve its initial growth phase.
In a Four Week MBA analysis to dissect the Coca-Cola system, the company
uses a template wherein the short term its new operations are controlled and the
company keeps a controlling equity stake in the new venture.
As soon as it takes off, the operation goes back from chain to the franchise.
Thus the company divests its controlling stakes and in the long-run that
becomes a franchising agreement.
When Netflix started its operations, it did that in the most feasible way at the
time, as a DVD-rental company.
That was the most viable way to start a business that could compete with
existing players like Blockbuster. Netflix could have tried to play it
bigger. Netflix had known for years that being a competitive player in the DVD-
rental space, was “just the beginning of something else.”
Yet the first time “streaming” was announced on Netflix plan was in the 2007
annual report, presented in 2008, and by 2009 annual report the term
“streaming” would be mentioned 88 times (FourWeekMBA analysis). That is
when things started to pick up and Netflix moved away from its go-to-
market strategy.
It took over a decade from its foundation, for Netflix, to see its strategy to roll
out fully!
OYO business model is a mixture of platform and brand, where the company
started primarily as an aggregator of homes across India, and it quickly moved
to other verticals, from leisure to co-working and corporate travel. In a sort of
octopus business strategy of expansion to cover the whole spectrum of short-
term real estate.
The process of standardization of the experience starts with what OYO claims
to be a 150 point checklist that goes from the booking experience to the support
centre and the on-ground Cluster Managers, ready to solve any problem it might
arise during the experience of guests.
Thus the go-to-market (expansion) strategy looks like the following:
Tesla’s vision is to “create the most compelling car company of the 21st century
by driving the world’s transition to electric vehicles,” while its mission is “to
accelerate the advent of sustainable transport by bringing compelling mass-
market electric cars to market as soon as possible.” Tesla used a
transitional business model as its ecosystem grows.
From Tesla’s mission, it’s clear that the company wants to become in the long
run a mass-adopted car company. Yet, when it launched, it was all but a mass-
market organization. An outside looker might have had the impression that
Tesla was just a sports car company, coming up with a great electric alternative.
Sport’s cars have much higher prices compared to other models (like sedans),
and perhaps the person buying that type of car might be less sensitive to price
itself. That is how Tesla slowly built up its strategy to cover larger spaces
within the car industry.
And while Tesla is still a smaller player in terms of the volume of cars
produced, as of 2020, compared to companies like Ford and GM, it is rolling
out its strategy to become a mass-market electric car company. As this is a
complete market change, it will still require a few years for this strategy to roll
out successfully.
For instance, as pointed out by Zoom in its 2019, 10K “back in 2019, 55% of
the 344 customers that contributed more than $100,000 of revenue started with
at least one free host prior to subscribing.”
Therefore, the sales model combines the viral demand generation from the free
Zoom Meeting plan with direct sales looking for potential customer
opportunities.
MARKETING OBJECTIVES
It consists of two major issues:
Determining financial objective which is the impact on the bottom line.
Determining marketing objective which indicates the targets to be achieved
across several marketing decision areas.
MARKETING STRATEGY
Identify the general marketing strategy under which the plan is being developed.
Target market –this is the specific market segment on which the business is
going to concentrate its efforts. It should be measurable and large enough to be
potentially profitable. Potential customers should be able to reach it and
information on its products and services should be readily available. It should
also be responsive meaning that there should be members interested in the
product and willing to buy it.
Marketing Mix
Product
This deals with goods/services that the business will provide. Product features
include distinctive characteristics, color and quality. It may also include
intangibles like warranties, service contracts, delivery, installation and
instructions. Branding is the name or symbol used to identify the product. The
package is the physical container or wrapper that holds it. The label is that part
of the package used to present information. Product positioning refers to how
consumers see the product compared to that of the competition. Positioning can
also be achieved through differences in quality, availability, pricing and uses.
Product mix refers to all the products a company makes or sells.
Product decisions
What products should the business sell or manufacture? What quality should the
products or services be? How much inventory should the business maintain?
How will the company’s products/services be different or better from the
competitors? How will the products be positioned? What will be the company’s
customer service policy?
Price
Factors affecting price-Is demand for the product high and supply low? Is
demand so high that people are willing to pay almost any amount for it? How
many series of businesses are involved in selling/distributing the company’s
product? How much product does each require to make handling the company’s
product worthwhile? What are the profit margins? How is the competition
pricing their products? What impact are the company’s costs and expenses on
the product’s price?
Pricing decisions
What motivates the customers who will buy the company’s product/service?
Are they price sensitive or status conscious? How much will the customers be
willing and able to buy and at what price? What is the pricing strategy and
policy?
Place/Distribution Strategy
This involves how the company will deliver the product/service to its
customers. Where will they go to buy, when will they buy. Will the product
actually be there? The movement of the product to its location and the
customers is at the core of all the questions. A channel of distribution is the path
a product takes from producer to the final user. Direct is from producer to the
customer. An indirect channel employs intermediaries. These are people that
move the products between producers and final users such as wholesalers,
retailers, distributors and agents. A channel of distribution raises the product’s
costs and determines how quickly the product reaches the customers.
Place decisions
How will the company’s product be sold and distributed? Will the product go
directly from producer to user or will it go through an intermediary? Are there
opportunities to use more efficient channels of distribution? Who are the
channel members the company will use to obtain and distribute the products?
How intensively will the company distribute its products? Is the company’s
location appropriate for the target market?
Promotion
This is designed to tell customers about the product or service. It should discuss
the product’s characteristics, benefits, and availability. It should also explain
where and how to purchase the product/service.
Sales promotion, this is the use of incentives to stimulate sales eg. Displays or
contests.
Public relations, this ensures that the organization portrays a good image to its
stakeholders. These are activities and news items that are placed to give a
positive image to the company’ customers and potential customers.
Promotional decisions
What kind of advertising media should the company use? What will be the
message or theme? What public relation effort should the company plan? What
sales promotion activities should be appropriate for the business? How will
promotional activities be coordinated?
COST LEADERSHIP
A low-cost leader can use its power to attack competitors with the lowest price
in the industry.
There are many ways to build a low-cost strategy, but the most successful cost
leaders know where they have cost advantages over their competitors, and they
use these as the foundation for their strategies. They also are committed to
squeezing unnecessary costs out of their operations.
DIFFERENTIATION
FOCUS
A focus strategy recognizes that not all markets are homogeneous. In fact, in
any given market, there are many different customer segments, each having
different needs, wants, and characteristics.
The principal idea of this strategy is to select one or more market segments,
identify customers’ special needs, wants, and interests, and approach them with
a good or service designed to excel in meeting these needs, wants, and interests.
Small companies must develop strategies that exploit all of the competitive
advantages of their size by:
Innovation Strategy
Product Innovation
Service Innovation
Process Innovation
Business Model Innovation
CHAPTER 10: DEVELOPING THE BUSINESS OPERATIONS STRATEGY
To help the owner manager in their seemingly impossible task of juggling all
the important tasks in the day to day running of their firm computerized
business processes using ICT have become increasingly available and
affordable. ICT systems increasingly help small firms to develop processes,
records and controls.
Another common error is to assume that systems and record keeping are
primarily financial in function while accounting records are at the heart of any
small firm’s systems every management function and business process can
benefit from a systematic approach.
Furniture, desks, chairs and filing cabinets; Fixtures and appliances; Office
supplies, stationery, paper clips, staples, and punchers; Maintenance supplies
and equipment, cleaning products and tools for minor repairs.
Review operations
This involves mentally reviewing the business proposed operation and what it
will take to carry it out. List the specific equipment, supplies and inventory
which is needed. Then estimate the quantities needed to start up the business.
Confirm projections
This requires getting the input from others who have experience in the business.
Entrepreneurs in a similar field can point out things which have been
overlooked in the business lists and estimates. They can also tell which are high
volume and low volume months in the business. This information is essential if
the business is to project the operating costs accurately.
Trade associations often have prepared informational packages that include both
needs and cost data for their field. Typically the packages give industry
averages for operating and start-up costs.
The owner must determine where and how to get it. The owner needs to contact
several different suppliers. Business associations in a similar field can help by
identifying some. Others can be found by looking in the local and telephone
directories.
Equipment
There is need to determine the purpose of the item in question. Identify the
space that it will occupy in the facility and whether that space is enough
Supplies
Inventory
Inventories for the business must be thoroughly researched and planned. They
are critical to the ultimate success of the business.
Obtaining all items, including goods and services in the proper form, quantity
and quality and at the proper place, time and cost is the main objective of
purchasing. Purchasing identifies the needs of the company and then finds and
negotiates for, orders and assures delivery of those items. There is need to
coordinate the business needs with the operations of suppliers, establish
standardized procedures and set up and maintain controls to ensure proper
performance.
Potential supply sources should be checked for factors such as quality of output,
price, desire to serve, reliability, transportation, terms of payment and
guarantees. Suppliers should not be chosen on the basis of price alone, for
quality or service may suffer if the supplier has to lower prices to obtain an
order. Instead suppliers should be chosen to meet carefully set quality and
service standards. These standards can be used to ensure acceptable quality
without paying for quality and higher than needed.
Name search
The owners of the company should come up with a list names for the company,
with the Registrar of Companies. The list of names are filled on the CR21 form
and the form is submitted to the Company Registration Office upon a payment
of the prescribed amount. Six different names should be on the list and arranged
in order of preference. A waiting period is given which the file will be collected.
One of the names may be approved by the Chief Registrar of Companies.
The directors fill in the CR14 form which requires their particulars such as
names, physical addresses and national identity numbers. This form notifies the
Registrar of Companies of the appointment of the company’s directors and
secretary. The CR6 form gives details of the company’s physical and postal
addresses.
The directors then should come up with the memorandum and articles of
association. The memorandum of association contains the approved name of the
company and its physical address as well as its operational objectives. The
articles of association should contain the company’s operational details and its
purpose. It should also show share contributions of each director. These forms
are filled and submitted to the Registrar of companies upon payment of a
prescribed sum of money and the company will be issued with a registration
certificate.
Name search
A PBC 1 form is filled with the list of possible names for the corporation. This
form is submitted to the Registrar of Companies.
The postal address of the private business corporation and the physical address
The full name of each member and his national identity number.
The amount of each member’s contribution to the assets of the private business
corporation.
The name and postal address of an accounting officer to whom the members of
the private business corporation intend to submit their financial statements.
The date of the end of the financial year of the private business corporation.
Tax Regulations
Corporate tax
It is the tax collected from companies and its amount is based on the net income
the company obtained during the trading year. The tax stands at 25.75%. Taxes
in Zimbabwe are paid based on projections which companies make and then
these are divided into quarter which are then called Quarterly Payment Dates
(QPD). At the end of every quarter then they pay a prescribed percentage of the
tax until the last quarter. At the end of the year they then fill tax returns which
then reconcile the projected taxes which were paid against the actual
performance of the company. The tax returns form is called ITF 12B.
Presumptive tax
It was introduced to broaden the tax revenue base in view of the increase of the
informal activities. Every operator of hairdressing, taxi cabs, omnibus operators,
driving schools, small scale miners, cottage industry operators, fishing rigs,
informal traders and operators of restaurants are required to pay presumptive
tax. These taxes are divided into quarters with deadlines for payments.
VAT
It means value added tax. From the perspective of the buyer it is a tax on the
purchase price and from the sellers perspective it is a tax only on the value
added to a product, material or service. In Zimbabwe only operators registered
for VAT may charge VAT on the supplier of goods and services. Any business
which trades in taxable supplies whose revenue exceeds $60000.00 must apply
to register for VAT. Penalties and interest are chargeable if a client fails or
delays to pay VAT on due dates. VAT returns are to be completed and
submitted to ZIMRA every month on prescribed due dates.
PAYE
Business Licensing
Most of the major sectors of the economy have regulatory authority agencies
which regulate the operations of the sector. They state the licenses and other
compliance requirements for the players in the particular sector.
Shop licenses
ENT131/205
Assignment Questions
2. The Market
a. Who is your target market? (these are the different groups of
customers who will buy the product/service)
b. Who are your potential customers? What are their numbers? Where
are they located?
c. How big/attractive is the market for your product/service?
d. What proportion of the market can you capture?
e. What are the buying patterns of your customers?
3. The Industry
a. What is the size of the industry? How fast is it growing?
b. Is the industry as a whole profitable?
c. Is it characterised by high profit margins or razor thin margins?
d. How intense is the level of competition?
e. What trends are shaping the industry’s future?
4. Macro analysis
a. Economic Trends
Interest rates, foreign exchange rates, tax rates, inflation rates, supply
and demand.
b. Socio-cultural Trends
Education level, buying habits, disposable income levels, belief
systems and practices, traditions and behaviours of people, acceptance
of e-commerce, comfort with technology, age distribution and
population density.
c. Political/Regulatory Changes
Tax policy, labour law, environmental law, trade restrictions, tariffs
and political stability, health and safety laws, employment law,
consumer laws and political stability.
d. Technological Changes
Internet connectivity, automation.
e. Ecological Changes
Issues of eco-friendly products climate change etc.
f. Regional & Global trends- what is happening in Africa and the rest of
the world in relation to this opportunity/gap/problem?
5. Team Skills
a. Does the opportunity fit the team’s business mission, personal
aspirations and risk propensity, and does all of that align with that of a
prospective investor?
b. Does the team have what it takes, in a human sense- in experience and
industry know-how- to deliver superior performance for this particular
opportunity, given its critical success factors, that is those factors that
done right, almost guarantee superior performance, even if other
things aren’t done so well or done wrong, will have severely negative
effects on performance regardless of doing other things right?
c. Is the team well connected up, down and across the value chain so it
will be quick to notice any opportunity or need to change its approach
if conditions warrant?
d. What is the Team’s Business Mission, Personal Aspirations and Risk
Propensity?
e. Is the Team Able to Execute on the Critical Success Factors?
6. Financial Requirements
a. How much money do you require to start the business? Explain how
you will use this money.
b. How will you obtain this money? When borrowing, only borrow for
expansion not for consumption.
c. What does it cost to produce, distribute your product/service?
d. Give an estimate of the fixed and variable expenses?
e. What is your expected profit?
f. Develop your break even analysis.
7. Business Model
a. Value proposition: what value do we deliver to the customer?
b. Customer relationships: what type of relationship does each of our
customer segments expect us to establish and maintain with them?
c. Customer segments: for whom are we creating value?
d. Channels: through which channels do our customer segments want to
be reached?
e. Cost structure: what are the most important costs inherent in our
business model?
10.Competitive Strategy
a. How will you compete in the market? Is it through:
b. Cost leadership? How will you cut costs
c. Differentiation? How will you differentiate?
d. Focus? How will you choose your niche?
e. Innovation? How will you innovate?