Business Simulation Games SimVenture accompanying material ELIOS Lab Business Simulation Games SimVenture accompanying material Prof. Alessandro De Gloria ELIOS Lab - Dynatech – Univ. Genoa

Sales and market Operation Organization Finance Research 4 main areas Sales and market Research Market Competition Customer feedback Marketing strategy Target segment Selling points Marketing promotions Sales strategy Pricing Sales channels Customer support Operation Organization Finance

Basic, fundamental questions: Research Research is necessary to make good business decisions, in particular for a start-up Basic, 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 need Repeat this exercise if you have more than one market to aim at Tip: don't conduct research with friends and relatives! Be objective!

Qualitative methods Quantitative methods Research Qualitative methods In-depth testing of prototypes Small numbers of testers (5-10), longer interaction Quantitative methods Extensive 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 www.mrs.org.uk/mrindustry/index.htm provides a wealth of invaluable data and advice.

2- Competition research 3- Customer feedback 1- Market research 2- Competition research 3- Customer feedback

It is common to consider everyone as a potential customer 1- Market research It is common to consider everyone as a potential customer But this approach fails because specific meaningful messages cannot be targeted at specific people By doing some research and segmenting your market you can tailor promotional activities and focus on one group to sell to This process is called MARKETING

Market research – key considerations What factors can be used to identify segments? Location, buying power, product needs Customers: social status, sex, age, interests What 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-up Do it by yourself. Thinking

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 market Avoiding strong competition will improve your chances

Competition research – key considerations What do you need to know about your competitors? What are the strength and weaknesses of their products How much do they charge How do they market What share of the market do they have How to get this info? Publicly available resources Friends Pay a research company How can you use this info? Find the gap in the market Your product needs to be unique in the marketplace You must differentiate from the competitors You need to satisfy the customers’ needs Define your prices based on the competitors Set sale targets

You must listen your customers 2- Customer feedback You must listen your customers Creating an effective questionnaire is not easy Asking wrong questions Badly interpreting the answers

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 product Improve market strategy Plan for the future by understanding your customers’ buying patterns Anticipate threats by competitors and exploit opportunities Choose the right price How to get this info? Pay a research company Ask people to complete a questionnaire Invite people to an event and get their feedback Internet/phone

3- Marketing promotions Marketing strategy 1- Target segment 2- Selling points 3- Marketing promotions

Choose the target market for your marketing campaign 1- Target segment Choose the target market for your marketing campaign Exploit your market research data Key considerations What do customers want? Product design, selling points should follow from this What price will they pay? Size of the potential market? To help forecast sales and understand cash movements How to reach them? Competitors in the segment? It’s better to find a niche…

Selling points (or Unique Selling Propositions) What candidates? To persuade people to buy your product you must communicate clearly the benefits of making the purchase Selling points (or Unique Selling Propositions) What candidates? Quality, performance, features, price Delivery, methods of payment Company experience Choice criteria? Depends on the target audience Exploit customer feedback How many points? Trade-off between accuracy and effectiveness The 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)

3- Marketing promotions Communicate what you offer to your potential customers Key considerations How much does the promotion cost? Who will it reach? Aim at the right target How effective is the message? Good presentation Timeliness When will they have effect? How often can it be repeated Also message reinforced (e.g., phone call after an email)

Sales strategy 1- Pricing 2- Sales channels 3- Customer support

Make profit and attract customers 1- Pricing Make profit and attract customers If necessary use sale promotions and discounts What is the lowest price you can afford? The cost of producing each unit of product But you have also to consider the fixed costs in the business What is the highest price your customers might pay? The higher your price, the more potential customers you exclude What are your competitors’ prices? How does the pricing affect the customers’ perception of your product? Lower prices could be perceived as lower quality Use of sale promotions? Number of sales could be more important than the profit, sometimes, for short periods Sell off old stock, increase market share, counter a competitor’s promotion

Choose the best way to get your product out into the market 2- Sales channels Choose the best way to get your product out into the market How 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 increase What channels do your potential customers normally use? What channels are open to you? A major distributor will consider only referenced products Shop retail works with the right premises

If you want to retain your customers and avoid bad reputation.. 3- Customer support If you want to retain your customers and avoid bad reputation.. Key considerations What type of support do they need Installation, failuers When is help needed and for how long? Can you charge extra? Adding value like this is a common practice Reputation will suffer if you say that support is a selling point and it does not work well Can you help customers to help themselves? Forums, knolwedge databases, good documentation

Area 2 - Operations Product design Purchasing Production Quality

Give customers what they want Product design Give customers what they want Choose the right mix of product attributes whilst keeping costs down What do your customers want? Market research How long does it take to design? You need to predict where your business will be when the design is complete How much does it cost? Giving customers what they want makes no sense if the production costs make a loss What else will be affected by a redesign Impact on sales, marketing, support and packaging Other issues How often redesign?

Find the right supplier How much do you have to pay? Payment terms Purchasing Find the right supplier How much do you have to pay? Payment terms E.g., credit terms (avoid paying before you are paid by the customer) Good relationships Reliability: right goods, time, quality Discount for bulk buying

How to produce How much stock to keep? How many to produce? Production How to produce How much stock to keep? Less delay in availability Ties up vital cash that might be needed elsewhere How many to produce? Batch production Efficiency + May not fit your orders - Keep stock - Bulk buying + Who produces? Outsourcing? Make on your own may make it easier to satisfy orders promptly

Monitor your products’ reliability to attain a high level of quality Check your product/service to identify defects before supplying to the customer Prevent faulty products going out the door Bad reputation Highlight problems in the production process which causes such failures How is it done? Random testing Check a proportion Inspection Visual check for obvious damages Soak testing Extensive time for every product

Create a stable platform for your business to flourish Area 3 - Organization Create a stable platform for your business to flourish Typically, long-term decisions Weigh up your options carefully For a small business, staying flexible is often the most important principle 3 sub-areas Premises People Legal

Get the best mix of space, location, facilities and value Premises Get the best mix of space, location, facilities and value Equip with the resources Choose the services you need

Facilities included in the price 1- Location Try to ensure your premises project an image that is consistent with your product Spaces: Storage, receprion, rest areas, services Where: A good location may expose you to many more potential customers, portray a stronger image Too far places may deter them What terms? Lease is good to spare cash, but you may have limitations in extension and use Facilities included in the price A lot of services needed for a start-up (e.g., receptionist, photocopiers, etc.) Managed premises may provide these for a fixed cost Effects of relocation?

What effect on your business? How to pay? 2- Resources What? Equipment Furniture Transport Tools What effect on your business? How to pay? Equipment can be hired Vehicles can be paid for over a period of time This costs you more, in the long-term

People 1- Business owner 40 hours usally. But a business owner may take much more (80) What are the risks of working too hard? Stress Demotivation Less effectiveness Ill health Family/social life affected Be conservative: assume you need more than less Make sure you achieve your earning target

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 business How much time will be lost? DVD-Course, vs. real teacher How many people need the training? Where and when? Near your premises is more effective

How to find perspective candidates? Who do you interview? Recruitment How to find perspective candidates? Own advertising vs. agency advertising Who do you interview? An agency may filter better through CV scouting (not everything in a CV is as it seems) Interview Skills, background, aspirations and personality Check the CV Sell them the job, giving info and answering questions What can you offer them? Not only money Career path, training in new skills, flexible hours, autonomy

Allocate responsibilities to your staff Management Allocate responsibilities to your staff Primary, secondary, reserve, never Tasks: Design, recruitment, training, finance, sales, marketing, etc. Staff skills: Production, writing, research, business mgmt, marketing, sales, etc.

Set up a Limited Company Health & safety Legal Set up a Limited Company You can start without, but you’ll need quite soon Health & safety Undertake a risk assessment of your premises Check all H&S issues are considered Contract law To provide to customers Also to protect you Employment law Pay, disipline, hours of work, maternity,time off-work etc. Use a professional to have advice and guidance

Finance Raising money Banking Forecasting Accounting Credit Control

What flexibility do you need? How much do you need? Raising money Bank loans Decision parameters Amount Period Interests Can 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

Do you all understand the risk? Raising money Friends and family The same parameters as for a bank Do you all understand the risk?

Raising money Bank overdraft Aimed 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 profits An 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.

Selling equity (shares) What is the company worth? Raising money Selling 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 business They may bring vital skills you don’t have Investors are here to make money What do you offer them? How to find investors? Networks of business angels are specialized in very small businesses

What can they be used for? Raising money Grants Many companies are not aware of the aid that is available to help them get off the ground… Qualifications Typically: new businesses, the young, disadvantaged areas Who offers grants? Government agencies, charitable organizations What can they be used for? Normally they are specificaklly purposed: training, R&D Application process can be lengthy and with no guarantee of success

Set up a bank account Costs Why needed? Fixed or variable Banking Set up a bank account Why needed? To pay and get paid Earn interests (vs. inflation) To get an overdraft – short-term borrowing – or loans Costs Fixed or variable

Forecasting Predict future activity in order to anticipate problems before they occur It’s better to make a series of educated guesses Sales targets Estimate future sales, based on research Budgets Estimate costs for different areas of your business Profit forecast Total sales for the predicted period minus production and fixed costs Cashflow forecast Similar to profit/loss, but calculations are based on when money changes hands

Forecasting Predict future activity in order to anticipate problems before they occur It’s better to make a series of educated guesses Sales targets Estimate future sales, based on research Budgets Estimate costs for different areas of your business Profit forecast Total sales for the predicted period minus production and fixed costs Cashflow forecast Similar to profit/loss, but calculations are based on when money changes hands

Necessary to generate a profit or cashflow forecast Sales targets Necessary to generate a profit or cashflow forecast You can anticipate problems and correct them before they become critical Not easy.. The more established you are, the easier it becomes, as you can exploit historical data Without 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

Fixed and variable costs (depending on production) Budgets Estimate your future spending in the main categories of expenditure over forthcoming months It is wise to add a little bit of contingency to each expenditure category for unforeseen expenditures Necessary for financial forecasts (profitability and cashflow) and to check if you are spending too much Fixed and variable costs (depending on production) Frequent checks. If you spend too much, try and reduce your spending or update the prediction figures

If the forecast profit is low, you need to improve the situation Profit & Loss forecast Compare predictions for income and expenditure (diffeerent categories of costs) over a period of several months It is not concerned when the payment is made, only when the cost was incurred Profitability is needed for a business to survive. You cannot make continual losses If the forecast profit is low, you need to improve the situation Remember that profitability is meaningful only over the long-term. So, watch the trend over 6 months to 1 year

Perhaps the biggest problem that faces a small business Cashflow forecast Perhaps the biggest problem that faces a small business You may be well in profit and still fail because you run out of your most precious resource: money A monthly estimate of how money will enter and leave your bank account Prediction is a vital exercise that needs to be done regularly You should avoid below 0 (or agreed overdraft limit). Check when you can make bonuses or investments

Accounts Bookkeeping Record 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

When the money changes hands is not considered Accounts Profit & loss report Review the profit made by the company to determine how successful it is When the money changes hands is not considered If a sale is agreed or a cost incurred in that month, it is duly reported Some things do not affect profit Loans or equity inputs to the business Repayments on loans (except interest) Only affect balance sheet and cashflow Compare the profit report with the profit forecast and adjust forecasts accordingly

What can you learn from the cashflow report? Accounts Cashflow Movement of cash in and out of your business When money changes hands, rather than when the cost is incurred This becomes an issue when custmers pay an account (payment after 7-30-60-90 days) When you run out of money, the company cannot operate and you will be out of business This is why forecasting is essential What 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

Amount owed to creditors Accounts Balance sheet Measure the value of the company’s tangible assets and liabilities (attivo e passivo) It takes no account of intangible assets like brands and future earnings Amount owed to creditors Value of asssets can be used by lenders and investors before putting money into the business The final figure does not represent the worth (market value) of a company – this would involve also potential future performance

Long-term liabilities Accounts Balance sheet Combination of long term and short term assets Fixed assets Equipment. Take the purchase price and depreciate them among each year Current assets Total money owed to the business (debtors), cash in the bank, value of stock on hand Current liabilities Anything outstanding to your suppliers (creditors) Long-term liabilities Value of any loans outstanding

Other financial measurements Assess the health of your business in a variety of ways Return on Capital employed Current assets (cash, debtors, stock) / current liabilities (creditors, overdrafts) Liquidity of a company. Should be around 1.5. Below 1 is in danger Current ratio Net profit / capital employed x 100% Profitability: should be higher than savings accounts Gearing Long term loans / capital employed x 100% A measure of risk for an investor Asset turnover Sales turnover / net assets Volume di affari. A measure of how well the company’s assets are being used to generate sales

Monitor customers who owe money and adopt a strategy for late payment Credit control Monitor customers who owe money and adopt a strategy for late payment Is your debtor even aware of being late? Being understanding (of your debtor needs) might be a good choice Start slowly and politely, and gradually ramp up the pressure Is the payment worth chasing? A company that has no money is unlikely to pay you Possible choices? Mail, phone call, threaten legal action, debt collection agency