Introduction to Entrepreneurship: It’s All About The Money, Right? By: Venture Highway

Objectives  Review the methods for which customer pay for products and services  Describe the revenue stream types  Understand entrepreneurial pricing strategies  Describe the strategies used to make revenue and cost projections  Describe the tools needed business and projected startup cost  Review the methods used to acquire startup funding

It’s All About The Money, Right? How Do Customers Pay? Without capital, products cannot be produced and services cannot be provided. Investment capital can get the business started, but the company must also have sufficient ongoing revenue in order to be sustainable. Section 1: How Do Customers Pay and How Much?

It’s All About The Money, Right? Revenue Streams When trying to determine what customers will pay for your service, two revenue streams are advanced:  Transaction revenues-occur when a customer pays for a product or service once per transaction.  Recurring revenues-occur when a customer pays ongoing fees over time for a recurring service or value, or for ongoing customer support.  Examples: Subscriptions or memberships. Section 1: How Do Customers Pay and How Much?

It’s All About The Money, Right? Entrepreneurial Pricing Strategies  Pricing includes covering the cost and time for product and service development.  Prices may begin at a lower range to attract customers and could increase at a later time to align with other competitors.  Cost could also be aligned to the type of service or quality of a product  Example: Luxury services may yield a higher cost to customers Section 1: How Do Customers Pay and How Much?

It’s All About The Money, Right? Entrepreneurial Pricing Strategies Examples of pricing strategies include: Cost-led pricing: Include all costs associated with the product or service and add the expected profit. Competition-led pricing: Match pricing with competitors’ price for the same product or service. Customer led pricing: Consult with customers about your pricing strategy. Ask them what they would be willing to pay. Introductory offer: Start with an introductory price that may be either free or at a competitive discount. One price for every item: Take your average cost to develop your product, and find the average industry markup and set every item equal to one price. Premium pricing: Set a high price for a unique or luxury product or service. Section 1: How Do Customers Pay and How Much?

It’s All About The Money, Right? Before you can determine how much money you will need, you will need to project your revenue and costs over time:  Revenue: Projected by factoring the number of customers within your target market and the acquired amount of customers over a period of time. The pricing strategy is then factored in to make the revenue projections. Section 2: Projections

It’s All About The Money, Right? When beginning your cost projections it is best to review ideas and examples from the financial models of established businesses: For example, conduct a “best of breed analysis” that includes:  Compile a list of the best competitors  Research how competitors earn and spend their money  Determine how much they spend on key financial plan components (e.g., sales, marketing, technology, etc…) Section 2: Projections

It’s All About The Money, Right? To figure out your financial needs you need to know two things:  Your startup cost  Your financial projections Section 3: How Much Money Do You Need?

Equipment Salaries Web Design Facilities Inventory Legal & Accounting Fees Marketing Material It’s All About The Money, Right? Startup costs are the costs you will incur while building a product which you can sell and may include things such as: Section 3: How Much Money Do You Need?

It’s All About The Money, Right? Putting The Pieces Together  Once you have figured the total startup costs, you can use your financial projections to determine how much you will need to operate the business until you break even.  The break-even point occurs when you are selling enough of your product to cover your fixed costs.  If any of your assumptions change, the break- even point will change.  The total funds that you need to have from some source are your startup costs plus funds that will be used to cover your expenses until you reach your break-even point. Section 3: How Much Money Do You Need?

It’s All About The Money, Right? Funding Your Startup The following funding sources could potentially be used to fund your startup business: Sweat equity Bootstrapping Personal wealth and borrowing Partners Government programs Small business development centers Loans Section 4: Where Will You Get The Money?

It’s All About The Money, Right? Funding Sources  Sweat Equity: You may have to play many roles and do things that you would pay others to do if you had the resources.  Bootstrapping: Keeping your costs as low as possible and putting all of your revenue back into the business is bootstrapping. This usually means that you will be sacrificing your own income from the business, so you will have to adjust your lifestyle.  Personal Wealth and Borrowing – You may be able to tap into savings, take a second mortgage on your home, or use other personal sources such as credit cards. Section 4: Where Will You Get The Money?

It’s All About The Money, Right? Funding Sources  Partners – If you decide to partner with someone who has skills that you need (technical or otherwise), that person may invest some of their own funds.  Government Programs – The U.S. government as a number of programs to help new ventures get started. These include incubators, tax breaks, and small business loans with attractive terms  Small Business Development Centers (SBDC) – Most states also have a Small Business Development Center that can provide programs to help with financial counseling and services.  Loans – You may be able to get a small business loan from a bank Section 4: Where Will You Get The Money?

It’s All About The Money, Right? Investment Sources Finding investors for a startup company is not easy, but it is not impossible. It is important to research your options and get professional legal and tax advice before you start pitching your idea, and especially before taking any money from anyone. Investment sources may include the following:  Friends & family, business incubators, Angel investors, Venture capitalists, crowd funding Section 4: Where Will You Get The Money?

It’s All About The Money, Right? Investment Sources  Friends and Family - Many entrepreneurs get funding from their personal network. This may be in the form or loans or investment.  Business Incubators – Incubators offer many resources for startups, including access to investors and government funding programs. Some have their own funds to invest or lend.  Angel Investors – Angel investors invest their own funds, usually in early stage startups in exchange for equity, or sometimes in the form of convertible debt.  Venture Capital – Venture capital comes from a professionally managed pool of funds from passive investors, and the capital is invested in a portfolio of companies in exchange for equity. Section 4: Where Will You Get The Money?

It’s All About The Money, Right? Investment Sources  Crowd Funding – Involves selling small amounts of equity to a large number of investors, usually via the Internet. Many sites are now available where entrepreneurs can post information about their business and seek investors. For example, One company, Indiegogo is an international crowd funding company for entrepreneurs with great ideas. Their goals are to raise money for entrepreneurs who are having difficulties raising the needed business capital on their own. Section 4: Where Will You Get The Money?

It’s All About The Money, Right? What are Investors Looking For? A good business plan should provide everything that an investor needs to know about your company. In general there are (4) things that are really important to investors: Section 4: Where Will You Get The Money? The Idea The Business Model The TeamThe Exit

It’s All About The Money, Right? What are Investors Looking For?  The Idea – Is the idea unique, does it solve a real problem, and does it offer a value that a large group of customers will pay for?  The Team – Does the company have a team that is qualified, experienced, and passionate. Often, the team is the most important factor for investors. No idea can succeed without good leadership.  The Business Model – How will you make money, and is your business scalable?  The Exit – How will the investor get their money back? What is the exit strategy? Section 4: Where Will You Get The Money?