Presentation on theme: "Business Simulation Games SimVenture accompanying material"— Presentation transcript:
1 Business Simulation Games SimVenture accompanying material ELIOS LabBusiness Simulation Games SimVenture accompanying materialProf. Alessandro De Gloria ELIOS Lab - Dynatech – Univ. Genoa
2 Sales and market Operation Organization Finance Research 4 main areasSales and marketResearchMarketCompetitionCustomer feedbackMarketing strategyTarget segmentSelling pointsMarketing promotionsSales strategyPricingSales channelsCustomer supportOperationOrganizationFinance
3 Basic, fundamental questions: ResearchResearch is necessary to make good business decisions, in particular for a start-upBasic, fundamental questions:How would you best describe the people who are most likely to buy your product or service?What do you want to know from these people that will make it easier to sell your product or service to them?How should you engage people so that you gather the information you needRepeat this exercise if you have more than one market to aim atTip: don't conduct research with friends and relatives! Be objective!
4 Qualitative methods Quantitative methods ResearchQualitative methodsIn-depth testing of prototypesSmall numbers of testers (5-10), longer interactionQuantitative methodsExtensive surveys (huge numbers and statistics)Possible questions:Price; product impressions; competitors; values; buying habits; location and access; important features; communication with the market etc.You are wise to work with a business advisor with appropriate experience or you can buy books on the subject.The Market Research Society's website at provides a wealth of invaluable data and advice.
6 It is common to consider everyone as a potential customer 1- Market researchIt is common to consider everyone as a potential customerBut this approach fails because specific meaningful messages cannot be targeted at specific peopleBy doing some research and segmenting your market you can tailor promotional activities and focus on one group to sell toThis process is called MARKETING
7 Market research – key considerations What factors can be used to identify segments?Location, buying power, product needsCustomers: social status, sex, age, interestsWhat is the target?What are the common characteristics? What are they looking for in a product? How many are they and where are they located? How can they be reached? What do they read/watch? How much are they prepared to pay?How can you use this info?Identify the segments. Choose the best one to target. Make sure your product meets the specific needs (tailor your product)How to get this info?Research agencies, but they may be too expensive for a start-upDo it by yourself. Thinking
8 2- Competition research If you have a good product, but your competitor has a better one…You need to know as much as possible about your competitors to give you the best chance in the marketAvoiding strong competition will improve your chances
9 Competition research – key considerations What do you need to know about your competitors?What are the strength and weaknesses of their productsHow much do they chargeHow do they marketWhat share of the market do they haveHow to get this info?Publicly available resourcesFriendsPay a research companyHow can you use this info?Find the gap in the marketYour product needs to be unique in the marketplaceYou must differentiate from the competitorsYou need to satisfy the customers’ needsDefine your prices based on the competitorsSet sale targets
10 You must listen your customers 2- Customer feedbackYou must listen your customersCreating an effective questionnaire is not easyAsking wrong questionsBadly interpreting the answers
11 Customer feedback – key considerations What do you need to know from your customers?What do they think of your product? Strength and weaknesses? What would they like to change? Where did they hear about your company? What do they think of your competitors? What advertising media do they see? How often do they buy and how much do they spend?How can you use this info?Refine your productImprove market strategyPlan for the future by understanding your customers’ buying patternsAnticipate threats by competitors and exploit opportunitiesChoose the right priceHow to get this info?Pay a research companyAsk people to complete a questionnaireInvite people to an event and get their feedbackInternet/phone
13 Choose the target market for your marketing campaign 1- Target segmentChoose the target market for your marketing campaignExploit your market research dataKey considerationsWhat do customers want?Product design, selling points should follow from thisWhat price will they pay?Size of the potential market?To help forecast sales and understand cash movementsHow to reach them?Competitors in the segment?It’s better to find a niche…
14 Selling points (or Unique Selling Propositions) What candidates? To persuade people to buy your product you must communicate clearly the benefits of making the purchaseSelling points (or Unique Selling Propositions)What candidates?Quality, performance, features, priceDelivery, methods of paymentCompany experienceChoice criteria?Depends on the target audienceExploit customer feedbackHow many points?Trade-off between accuracy and effectivenessThe more you differentiate, the more you stand out from competition, but you may reduce the impact of your message (customers are more likely to read short and simple messages)
15 3- Marketing promotions Communicate what you offer to your potential customersKey considerationsHow much does the promotion cost?Who will it reach?Aim at the right targetHow effective is the message?Good presentationTimelinessWhen will they have effect?How often can it be repeatedAlso message reinforced (e.g., phone call after an )
16 Sales strategy1- Pricing2- Sales channels3- Customer support
17 Make profit and attract customers 1- PricingMake profit and attract customersIf necessary use sale promotions and discountsWhat is the lowest price you can afford?The cost of producing each unit of productBut you have also to consider the fixed costs in the businessWhat is the highest price your customers might pay?The higher your price, the more potential customers you excludeWhat are your competitors’ prices?How does the pricing affect the customers’ perception of your product?Lower prices could be perceived as lower qualityUse of sale promotions?Number of sales could be more important than the profit, sometimes, for short periodsSell off old stock, increase market share, counter a competitor’s promotion
18 Choose the best way to get your product out into the market 2- Sales channelsChoose the best way to get your product out into the marketHow much does it cost?Set-up (overhead) and implementation (cost of sale)Time and effort needed?How much of the selling price will you get?Consider also possible cost reductions or revenue increaseWhat channels do your potential customers normally use?What channels are open to you?A major distributor will consider only referenced productsShop retail works with the right premises
19 If you want to retain your customers and avoid bad reputation.. 3- Customer supportIf you want to retain your customers and avoid bad reputation..Key considerationsWhat type of support do they needInstallation, failuersWhen is help needed and for how long?Can you charge extra?Adding value like this is a common practiceReputation will suffer if you say that support is a selling point and it does not work wellCan you help customers to help themselves?Forums, knolwedge databases, good documentation
20 Area 2 - OperationsProduct designPurchasingProductionQuality
21 Give customers what they want Product designGive customers what they wantChoose the right mix of product attributes whilst keeping costs downWhat do your customers want?Market researchHow long does it take to design?You need to predict where your business will be when the design is completeHow much does it cost?Giving customers what they want makes no sense if the production costs make a lossWhat else will be affected by a redesignImpact on sales, marketing, support and packagingOther issuesHow often redesign?
22 Find the right supplier How much do you have to pay? Payment terms PurchasingFind the right supplierHow much do you have to pay?Payment termsE.g., credit terms (avoid paying before you are paid by the customer)Good relationshipsReliability: right goods, time, qualityDiscount for bulk buying
23 How to produce How much stock to keep? How many to produce? ProductionHow to produceHow much stock to keep?Less delay in availabilityTies up vital cash that might be needed elsewhereHow many to produce?Batch productionEfficiency +May not fit your orders -Keep stock -Bulk buying +Who produces?Outsourcing?Make on your own may make it easier to satisfy orders promptly
24 Monitor your products’ reliability to attain a high level of quality Check your product/service to identify defects before supplying to the customerPrevent faulty products going out the doorBad reputationHighlight problems in the production process which causes such failuresHow is it done?Random testingCheck a proportionInspectionVisual check for obvious damagesSoak testingExtensive time for every product
25 Create a stable platform for your business to flourish Area 3 - OrganizationCreate a stable platform for your business to flourishTypically, long-term decisionsWeigh up your options carefullyFor a small business, staying flexible is often the most important principle3 sub-areasPremisesPeopleLegal
26 Get the best mix of space, location, facilities and value PremisesGet the best mix of space, location, facilities and valueEquip with the resourcesChoose the services you need
27 Facilities included in the price 1- LocationTry to ensure your premises project an image that is consistent with your productSpaces:Storage, receprion, rest areas, servicesWhere:A good location may expose you to many more potential customers, portray a stronger imageToo far places may deter themWhat terms?Lease is good to spare cash, but you may have limitations in extension and useFacilities included in the priceA lot of services needed for a start-up (e.g., receptionist, photocopiers, etc.)Managed premises may provide these for a fixed costEffects of relocation?
28 What effect on your business? How to pay? 2- ResourcesWhat?EquipmentFurnitureTransportToolsWhat effect on your business?How to pay?Equipment can be hiredVehicles can be paid for over a period of timeThis costs you more, in the long-term
29 People1- Business owner40 hours usally. But a business owner may take much more (80)What are the risks of working too hard?StressDemotivationLess effectivenessIll healthFamily/social life affectedBe conservative: assume you need more than lessMake sure you achieve your earning target
30 How much time will be lost? How many people need the training? How much does it cost?Usually, the more you pay, the quicker you learn (not always true)How long does it take?Make decisions that meet the needs of your businessHow much time will be lost?DVD-Course, vs. real teacherHow many people need the training?Where and when?Near your premises is more effective
31 How to find perspective candidates? Who do you interview? RecruitmentHow to find perspective candidates?Own advertising vs. agency advertisingWho do you interview?An agency may filter better through CV scouting (not everything in a CV is as it seems)InterviewSkills, background, aspirations and personalityCheck the CVSell them the job, giving info and answering questionsWhat can you offer them?Not only moneyCareer path, training in new skills, flexible hours, autonomy
32 Allocate responsibilities to your staff ManagementAllocate responsibilities to your staffPrimary, secondary, reserve, neverTasks:Design, recruitment, training, finance, sales, marketing, etc.Staff skills:Production, writing, research, business mgmt, marketing, sales, etc.
33 Set up a Limited Company Health & safety LegalSet up a Limited CompanyYou can start without, but you’ll need quite soonHealth & safetyUndertake a risk assessment of your premisesCheck all H&S issues are consideredContract lawTo provide to customersAlso to protect youEmployment lawPay, disipline, hours of work, maternity,time off-work etc.Use a professional to have advice and guidance
34 FinanceRaising moneyBankingForecastingAccountingCredit Control
35 What flexibility do you need? How much do you need? Raising moneyBank loansDecision parametersAmountPeriodInterestsCan you offer security?The process of arranging the loan will be much smoother…What flexibility do you need?Close earlier, take a payment holiday…How much do you need?Borrow enough at the start…How long do you need?The longer you take to pay back the loan, the more interests you will pay
36 Do you all understand the risk? Raising moneyFriends and familyThe same parameters as for a bankDo you all understand the risk?
37 Raising moneyBank overdraftAimed for you to handle short-term borrowing needs (while loans are more for long-term)A business-plan needs to be presented with a realistic forecast of future sales, costs, thus profitsAn overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be "overdrawn". If there is a prior agreement with the account provider for an overdraft, and the amount overdrawn is within the authorized overdraft limit, then interest is normally charged at the agreed rate. If the negative balance exceeds the agreed terms, additional fees may be charged.
38 Selling equity (shares) What is the company worth? Raising moneySelling equity (shares)What is the company worth?How much are you willing to give away?Some investors want to be involved in the running of the businessThey may bring vital skills you don’t haveInvestors are here to make moneyWhat do you offer them?How to find investors?Networks of business angels are specialized in very small businesses
39 What can they be used for? Raising moneyGrantsMany companies are not aware of the aid that is available to help them get off the ground…QualificationsTypically: new businesses, the young, disadvantaged areasWho offers grants?Government agencies, charitable organizationsWhat can they be used for?Normally they are specificaklly purposed: training, R&DApplication process can be lengthy and with no guarantee of success
40 Set up a bank account Costs Why needed? Fixed or variable BankingSet up a bank accountWhy needed?To pay and get paidEarn interests (vs. inflation)To get an overdraft – short-term borrowing – or loansCostsFixed or variable
41 ForecastingPredict future activity in order to anticipate problems before they occurIt’s better to make a series of educated guessesSales targetsEstimate future sales, based on researchBudgetsEstimate costs for different areas of your businessProfit forecastTotal sales for the predicted period minus production and fixed costsCashflow forecastSimilar to profit/loss, but calculations are based on when money changes hands
42 ForecastingPredict future activity in order to anticipate problems before they occurIt’s better to make a series of educated guessesSales targetsEstimate future sales, based on researchBudgetsEstimate costs for different areas of your businessProfit forecastTotal sales for the predicted period minus production and fixed costsCashflow forecastSimilar to profit/loss, but calculations are based on when money changes hands
43 Necessary to generate a profit or cashflow forecast Sales targetsNecessary to generate a profit or cashflow forecastYou can anticipate problems and correct them before they become criticalNot easy.. The more established you are, the easier it becomes, as you can exploit historical dataWithout them, you can use research and marketing/sales strategies. Better to be conservative…Review the targets against actual results, in order to update the forecasts and see whether you need to change the sales activity
44 Fixed and variable costs (depending on production) BudgetsEstimate your future spending in the main categories of expenditure over forthcoming monthsIt is wise to add a little bit of contingency to each expenditure category for unforeseen expendituresNecessary for financial forecasts (profitability and cashflow) and to check if you are spending too muchFixed and variable costs (depending on production)Frequent checks. If you spend too much, try and reduce your spending or update the prediction figures
45 If the forecast profit is low, you need to improve the situation Profit & Loss forecastCompare predictions for income and expenditure (diffeerent categories of costs) over a period of several monthsIt is not concerned when the payment is made, only when the cost was incurredProfitability is needed for a business to survive. You cannot make continual lossesIf the forecast profit is low, you need to improve the situationRemember that profitability is meaningful only over the long-term. So, watch the trend over 6 months to 1 year
46 Perhaps the biggest problem that faces a small business Cashflow forecastPerhaps the biggest problem that faces a small businessYou may be well in profit and still fail because you run out of your most precious resource: moneyA monthly estimate of how money will enter and leave your bank accountPrediction is a vital exercise that needs to be done regularlyYou should avoid below 0 (or agreed overdraft limit). Check when you can make bonuses or investments
47 AccountsBookkeepingRecord your business transactions to provide the raw data for accounts“Double entry” “Partita doppia” because each payment is entered twice, once for the category and once for the account affected
48 When the money changes hands is not considered AccountsProfit & loss reportReview the profit made by the company to determine how successful it isWhen the money changes hands is not consideredIf a sale is agreed or a cost incurred in that month, it is duly reportedSome things do not affect profitLoans or equity inputs to the businessRepayments on loans (except interest)Only affect balance sheet and cashflowCompare the profit report with the profit forecast and adjust forecasts accordingly
49 What can you learn from the cashflow report? AccountsCashflowMovement of cash in and out of your businessWhen money changes hands, rather than when the cost is incurredThis becomes an issue when custmers pay an account (payment after days)When you run out of money, the company cannot operate and you will be out of businessThis is why forecasting is essentialWhat can you learn from the cashflow report?The effect of late payers, how much you might need to borrow, seasonal variations, causes of big cashflow swing
50 Amount owed to creditors AccountsBalance sheetMeasure the value of the company’s tangible assets and liabilities (attivo e passivo)It takes no account of intangible assets like brands and future earningsAmount owed to creditorsValue of asssets can be used by lenders and investors before putting money into the businessThe final figure does not represent the worth (market value) of a company – this would involve also potential future performance
51 Long-term liabilities AccountsBalance sheetCombination of long term and short term assetsFixed assetsEquipment. Take the purchase price and depreciate them among each yearCurrent assetsTotal money owed to the business (debtors), cash in the bank, value of stock on handCurrent liabilitiesAnything outstanding to your suppliers (creditors)Long-term liabilitiesValue of any loans outstanding
52 Other financial measurements Assess the health of your business in a variety of waysReturn on Capital employedCurrent assets (cash, debtors, stock) / current liabilities (creditors, overdrafts)Liquidity of a company. Should be around 1.5. Below 1 is in dangerCurrent ratioNet profit / capital employed x 100%Profitability: should be higher than savings accountsGearingLong term loans / capital employed x 100%A measure of risk for an investorAsset turnoverSales turnover / net assetsVolume di affari. A measure of how well the company’s assets are being used to generate sales
53 Monitor customers who owe money and adopt a strategy for late payment Credit controlMonitor customers who owe money and adopt a strategy for late paymentIs your debtor even aware of being late?Being understanding (of your debtor needs) might be a good choiceStart slowly and politely, and gradually ramp up the pressureIs the payment worth chasing?A company that has no money is unlikely to pay youPossible choices?Mail, phone call, threaten legal action, debt collection agency