BS-4452 Entrepreneurship & SmallBusinessManagement Bülent Şenver bsenver@turklider.org

What is an Entrepreneur? One who creates a new business in the face of risk and uncertainty for the purpose of achieving profit and growth by identifying opportunities and assembling the necessary resources to capitalize on them. Ch. 1: The Foundations of Entrepreneurship

Characteristics of Entrepreneurs Desire for responsibility Preference for moderate levels of risk – risk eliminators Confidence in their ability to succeed Determination Desire for immediate feedback High level of energy Future orientation – opportunity, necessity, and serial entrepreneurs Skilled at organizing Value achievement over money Ch. 1: The Foundations of Entrepreneurship

Characteristics of Entrepreneurs Entrepreneurs tend to exhibit: A high degree of commitment Tolerance for ambiguity Flexibility A willingness to work hard Tenacity Ch. 1: The Foundations of Entrepreneurship

Benefits of Entrepreneurship The opportunity to: Create your own destiny Make a difference Reach your full potential Reap impressive profits Contribute to society and to be recognized for your efforts Do what you enjoy and to have fun at it Ch. 1: The Foundations of Entrepreneurship

Drawbacks of Entrepreneurship Uncertainty of income Risk of losing your entire investment Long hours and hard work Lower quality of life until the business gets established High levels of stress Complete responsibility Discouragement Ch. 1: The Foundations of Entrepreneurship

Avoiding the Pitfalls of Small Business Failure Know your business in depth Develop a solid business plan Manage financial resources Understand financial statements Learn to manage people effectively Set your business apart from the competition Maintain a positive attitude Ch. 1: The Foundations of Entrepreneurship

Putting Failure Into Perspective Entrepreneurs are not paralyzed by the prospect of failure. Failure – a natural part of the creative process. Successful entrepreneurs learn to fail intelligently. Ch. 1: The Foundations of Entrepreneurship

Creativity and Innovation Creativity – the ability to develop new ideas and to discover new ways of looking at problems and opportunities; thinking new things Innovation – the ability to apply creative solutions to problems or opportunities to enhance or to enrich people’s lives; doing new things. Ch. 2: Inside the Entrepreneurial Mind

Ch. 2: Inside the Entrepreneurial Mind Entrepreneurship Entrepreneurship – the result of a disciplined, systematic process of applying creativity and innovation to the needs and opportunities in the marketplace. Entrepreneurs connect their creative ideas with the purposeful action and structure of a business. Ch. 2: Inside the Entrepreneurial Mind

Failure: Part of the Creative Process! For every 3,000 new product ideas: Four make it to the development stage Two are actually launched One becomes a success in the market On average, new products account for 40% of companies’ sales!! Creativity is an important source of building a competitive advantage. Ch. 2: Inside the Entrepreneurial Mind

Right-Brained, Creative Thinkers Always ask: “Is there a better way?” Challenge custom, routine, and tradition. Are reflective. Are prolific thinkers. Play mental games. Ch. 2: Inside the Entrepreneurial Mind

Right-Brained, Creative Thinkers Realize that there may be more than one “right” answer. Know that mistakes are pit stops on the way to success. Recognize that problems are springboards for new ideas. Ch. 2: Inside the Entrepreneurial Mind

Right-Brained, Creative Thinkers Understand that failure is a natural part of the creative process. Relate seemingly unrelated ideas to a problem. Have “helicopter skills.” Ch. 2: Inside the Entrepreneurial Mind

Left-Brained or Right-Brained? Entrepreneurship requires both left-and right-brained thinking. Right-brained thinking draws on divergent reasoning, the ability to create a multitude of original, diverse ideas. Left-brained thinking counts on convergent reasoning, the ability to evaluate multiple ideas and to choose the best solution to a problem. Ch. 2: Inside the Entrepreneurial Mind

Barriers to Creativity Searching for the one “right” answer Focusing on “being logical” Blindly following the rules Constantly being practical Viewing play as frivolous Ch. 2: Inside the Entrepreneurial Mind

Barriers to Creativity Becoming overly specialized Avoiding ambiguity Fearing looking foolish Fearing mistakes and failure Believing that “I’m not creative” Ch. 2: Inside the Entrepreneurial Mind

Questions to Spur the Imagination Is there a new way to do it? Can you borrow or adapt it? Can you give it a new twist? Do you merely need more of the same? Do you need less of the same? Ch. 2: Inside the Entrepreneurial Mind

Questions to Spur the Imagination (continued) Is there a substitute? Can you rearrange the parts? What if you do just the opposite? Can you combine ideas? Can you put it to other uses? Ch. 2: Inside the Entrepreneurial Mind

Questions to Spur the Imagination (continued) What else could you make from this? Are there other markets for it? Can you reverse it? Can you eliminate it? Can you put it to another use? What idea seems impossible, but if executed, would revolutionize your business? Ch. 2: Inside the Entrepreneurial Mind

Tips for Enhancing Organizational Creativity Include creativity as a core company value Embrace diversity Expect creativity Expect and tolerate failure Create an organizational structure that nourishes creativity Ch. 2: Inside the Entrepreneurial Mind

Tips for Enhancing Organizational Creativity (continued) Encourage curiosity Create a change of scenery periodically View problems as opportunities Provide creativity training Provide support Develop a procedure for capturing ideas Ch. 2: Inside the Entrepreneurial Mind

Tips for Enhancing Organizational Creativity Continued Talk and interact with customers Reward creativity Model creative behavior Monitor emerging trends and identify ways your company can capitalize on them Hire for creativity Ch. 2: Inside the Entrepreneurial Mind

Tips for Enhancing Organizational Creativity Continued View problems as opportunities Incorporate fun into the work environment Design a work space that encourages creativity Look for uses for your company’s products or services in other markets Ch. 2: Inside the Entrepreneurial Mind

Tips for Enhancing Individual Creativity Allow yourself to be creative Give your mind fresh input every day Observe the products and services of other companies, especially those in completely different markets Recognize the creative power of mistakes Notice what is missing Ch. 2: Inside the Entrepreneurial Mind

Tips for Enhancing Individual Creativity Keep a journal to record your thoughts and ideas Listen to other people Listen to customers Talk to a child Do something ordinary in an unusual way Ch. 2: Inside the Entrepreneurial Mind

Tips for Enhancing Individual Creativity Keep a toy box in your office Do not throw away seeming “bad” ideas Take some time off Be persistent Ch. 2: Inside the Entrepreneurial Mind

Tips for Enhancing Individual Creativity Continued Forget the “rules” Take note of your “pain points” Read books on stimulating creativity or take a class on creativity Travel - and observe Watch a movie Ch. 2: Inside the Entrepreneurial Mind

Ch. 2: Inside the Entrepreneurial Mind The Creative Process Preparation Investigation Transformation Incubation Illumination Verification Implementation Ch. 2: Inside the Entrepreneurial Mind

Ch. 2: Inside the Entrepreneurial Mind The Creative Process Preparation Investigation Transformation Incubation Illumination Verification Implementation Ch. 2: Inside the Entrepreneurial Mind

Ch. 2: Inside the Entrepreneurial Mind Preparation Get your mind ready for creative thinking. Adopt the attitude of a lifelong student. Read … a lot … and not just in your field of expertise. Clip articles of interest to you and save them. Develop your listening skills. Ch. 2: Inside the Entrepreneurial Mind

Ch. 2: Inside the Entrepreneurial Mind Preparation Get your mind ready for creative thinking. Join professional or trade associations and attend their meetings. Eliminate creative distractions. Take time to discuss your ideas with other people. Ch. 2: Inside the Entrepreneurial Mind

Ch. 2: Inside the Entrepreneurial Mind The Creative Process Preparation Investigation Transformation Incubation Illumination Verification Implementation Ch. 2: Inside the Entrepreneurial Mind

Ch. 2: Inside the Entrepreneurial Mind The Creative Process Preparation Investigation Transformation Incubation Illumination Verification Implementation Ch. 2: Inside the Entrepreneurial Mind

Ch. 2: Inside the Entrepreneurial Mind Transformation Involves viewing both the similarities and the differences among the information collected. Two types of thinking are required: Convergent – the ability to see the similarities and the connections among various and often diverse data and events. Divergent – the ability to see the differences among various data and events. Ch. 2: Inside the Entrepreneurial Mind

Ch. 2: Inside the Entrepreneurial Mind Transformation How can you transform information into purposeful ideas? Grasp the “big picture” by looking for patterns that emerge. Rearrange the elements of the situation. Use synectics, taking two seeming nonsensical ideas and combining them. Remember that several approaches can be successful. If one fails, jump to another. Ch. 2: Inside the Entrepreneurial Mind

Ch. 2: Inside the Entrepreneurial Mind The Creative Process Preparation Investigation Transformation Incubation Illumination Verification Implementation Ch. 2: Inside the Entrepreneurial Mind

Ch. 2: Inside the Entrepreneurial Mind Incubation Allow your subconscious to reflect on the information collected. Walk away from the situation. Take the time to daydream. Relax – and play – regularly. Dream about the problem or opportunity. Work on the problem in a different environment. Ch. 2: Inside the Entrepreneurial Mind

Ch. 2: Inside the Entrepreneurial Mind The Creative Process Preparation Investigation Transformation Incubation Illumination Verification Implementation Ch. 2: Inside the Entrepreneurial Mind

Ch. 2: Inside the Entrepreneurial Mind The Creative Process Preparation Investigation Transformation Incubation Illumination Verification Implementation Ch. 2: Inside the Entrepreneurial Mind

Ch. 2: Inside the Entrepreneurial Mind Verification Validate the idea as accurate and useful. Is it really a better solution? Will it work? Is there a need for it? If so, what is the best application of this idea in the marketplace? Does this product or service fit into our core competencies? How much will it cost to produce or to provide? Can we sell it at a reasonable price that will produce a profit? Ch. 2: Inside the Entrepreneurial Mind

Ch. 2: Inside the Entrepreneurial Mind The Creative Process Preparation Investigation Transformation Incubation Illumination Verification Implementation Ch. 2: Inside the Entrepreneurial Mind

Techniques for Improving the Creative Process Brainstorming: The goal is to create a large quantity of novel and imaginative ideas. Ch. 2: Inside the Entrepreneurial Mind

Brainstorming Guidelines Keep the group small – “Two pizza rule.” Make the group as diverse as possible. Emphasize that company rank is irrelevant. Have a well-defined problem, but don’t reveal it ahead of time. Limit the session to 40 to 60 minutes. Take a field trip. Ch. 2: Inside the Entrepreneurial Mind

Brainstorming Guidelines Throw logic out the window. Encourage all ideas from the team. Shoot for quantity of ideas over quality of ideas. Forbid criticism. Encourage idea “hitch-hiking.” Dare to imagine the unreasonable. Appoint a recorder. Ch. 2: Inside the Entrepreneurial Mind

Brainstorming Guidelines Get people focused on the issue by inviting participants to submit at least three ideas by email before the session takes place. Encourage aerobic exercise before the session. Use a seating pattern that encourages interaction. Ch. 2: Inside the Entrepreneurial Mind

Techniques for Improving the Creative Process Brainstorming The goal is to create a large quantity of novel and imaginative ideas. Mind-mapping A graphical technique that encourages thinking on both sides of the brain, visually displays relationships among ideas, and improves the ability to see a problem from many sides. Ch. 2: Inside the Entrepreneurial Mind

The Mind-Mapping Process Start by writing down or sketching a picture symbolizing the problem or area of focus in the center of a blank page. Work as quickly as possible and write down every idea that comes into your mind for 20 minutes, connecting each to the central picture or words with a line. Don’t try to force creativity. After a brief rest, begin to integrate the ideas into a mind map. Ch. 2: Inside the Entrepreneurial Mind

Techniques for Improving the Creative Process Force Field Analysis A useful technique for evaluating the forces that support and oppose a proposed change. Three columns: Center: Problem to be addressed Left: Driving forces Right: Restraining forces Score each force (-1 to +4) and add them. Ch. 2: Inside the Entrepreneurial Mind

Sample Force Field Analysis Ch. 2: Inside the Entrepreneurial Mind

Ch. 2: Inside the Entrepreneurial Mind Protecting Your Ideas Patent – a grant from the Patent and Trademark Office to the inventor of product, giving the exclusive right to make, use, or sell the invention for 20 years from the date of filing the patent application. Ch. 2: Inside the Entrepreneurial Mind

The Six Steps to a Patent 6. File the patent application 5. Complete the patent application 4. Study search results 3. Search existing patents 2. Document the device 1. Establish the invention’s novelty Ch. 2: Inside the Entrepreneurial Mind

Ch. 2: Inside the Entrepreneurial Mind Protecting Your Ideas Trademark – any distinctive word, symbol, design, name, logo, slogan, or trade dress a company uses to identify the origin of a product or to distinguish it from other goods on the market. Servicemark – the same as a trademark except that it identifies the source of a service rather than a product. Ch. 2: Inside the Entrepreneurial Mind

Ch. 2: Inside the Entrepreneurial Mind Protecting Your Ideas Copyright – an exclusive right that protects the creators of original works of authorship such as literary, dramatic, musical, and artistic works. Copyrighted material is denoted by the symbol ©. Ch. 2: Inside the Entrepreneurial Mind

Protecting Intellectual Property The primary weapon an entrepreneur has to protect patents, trademarks, and copyrights is the legal system. Before engaging in a legal battle consider: Can the opponent afford to pay if you win? Do you expect to win enough to cover your legal costs? Can you afford the loss of time, money, and privacy involved? Ch. 2: Inside the Entrepreneurial Mind

Characteristics of Patents, Trademarks, and Copyrights Ch. 2: Inside the Entrepreneurial Mind

Conclusion The creative process is a tenant of the entrepreneurial experience. Success, and even survival itself, requires entrepreneurs to tap their creativity. The seven steps of the creative process transform an idea into a business reality. Creativity results in value, and value provides a competitive advantage. Entrepreneurs protect their creative ideas with patents, trademarks, servicemarks, and copyrights to sustain a competitive edge. Ch. 2: Inside the Entrepreneurial Mind 2 - 57

Ch. 3: Business Model and Strategic Plan A Major Shift . . . From financial capital to intellectual capital Human Structural Customer Ch. 3: Business Model and Strategic Plan

Ch. 3: Business Model and Strategic Plan Strategic Management Is crucial to building a successful business. Involves developing a game plan to guide a company as it strives to accomplish its mission, goals, and objectives, and to keep it on its desired course. Ch. 3: Business Model and Strategic Plan

Strategic Management and Competitive Advantage Developing a strategic plan is crucial to creating a sustainable competitive advantage, the aggregation of factors that sets a company apart from its competitors and gives it a unique position in the market that is superior to its competition. Example: Whole Foods Ch. 3: Business Model and Strategic Plan

Building a Competitive Advantage Consider five aspects of a small company: Products they sell Service they provide Pricing they offer Way they sell Values to which they are committed Ch. 3: Business Model and Strategic Plan

Key: Core Competencies Unique set of capabilities a company develops in key areas, such as superior quality, customer service, innovation, team-building, flexibility, responsiveness, and others that allow it to vault past competitors. They are what a company does best. Best to rely on a natural advantage (often linked to a company’s “smallness”). Example: Pizza Fusion Ch. 3: Business Model and Strategic Plan

Building a Sustainable Competitive Advantage Capabilities Core competencies Sustainable competitive advantage Lessons learned Superior value for customers Skills Ch. 3: Business Model and Strategic Plan

Strategic Management Process Step 1 Develop a vision and translate it into a mission statement Step 2 Assess strengths and weaknesses Step 3 Scan environment for opportunities and threats Step 4 Identify key success factors Ch. 3: Business Model and Strategic Plan

Strategic Management Process (continued) Step 5 Analyze competition Step 6 Create goals & objectives Step 7 Formulate strategies Step 8 Translate plans into actions Step 9 Establish accurate controls Ch. 3: Business Model and Strategic Plan

Step 1: Develop a Vision and Create a Mission Statement Vision – the result of an entrepreneur’s dream of something that does not exist yet and the ability to paint a compelling picture of that dream for everyone to see. A clearly defined vision: Provides direction Determines decisions Inspires people Allows for perseverance in the face of adversity Ch. 3: Business Model and Strategic Plan

Step 1: Develop a Vision and Create a Mission Statement Addresses question: “What business are we in?” The mission is a written expression of how the company will reflect an entrepreneur’s values, beliefs, and vision – more than just “making money.” Serves as a “strategic compass.” Examples: Chick-fil-A, Google Ch. 3: Business Model and Strategic Plan

Step 1: Develop a Vision and Create a Mission Statement Elements of a mission statement: Purpose of the company: What are we in business to accomplish? Business we are in: How are we going to accomplish that purpose? Values of the company: What principles and beliefs form the foundation of the way we do business? Ch. 3: Business Model and Strategic Plan

Step 2: Assess Company Strengths and Weaknesses Positive internal factors a company can draw on to accomplish its mission, goals, and objectives. Weaknesses Negative internal factors that inhibit a company’s ability to accomplish its mission, goals, and objectives. Ch. 3: Business Model and Strategic Plan

Step 3: Scan for Opportunities and Threats Positive external factors the company can exploit to accomplish its mission, goals, and objectives. Threats Negative external factors that inhibit the firm's ability to accomplish its mission, goals, and objectives. Ch. 3: Business Model and Strategic Plan

The Power of External Market Forces Technological Competitive Economic Political and Regulatory Social and Demographic Ch. 3: Business Model and Strategic Plan

Identifying and Managing Threats Ch. 3: Business Model and Strategic Plan

Step 4: Identify Key Success Factors Key success factors (KSFs): factors that determine the relative success of market participants. The keys to unlocking the secrets of competing successfully in a particular market segment. Example: Five Guys Burgers and Fries Ch. 3: Business Model and Strategic Plan

Identifying Key Success Factors List the skills, characteristics, and core competencies that your business must possess to be successful in its market segment. Key Success Factor How Your Company Rates 1. Low 1 2 3 4 5 6 7 8 9 10 High 2. 3. 4. 5. Conclusions: Ch. 3: Business Model and Strategic Plan

Step 5: Analyze Competitors NFIB study: Small business owners believe they operate in a highly competitive environment and the level of competition is increasing. Yet, 97 percent of all U.S. businesses do not systematically track the progress of their key competitors. Ch. 3: Business Model and Strategic Plan

Small Business Success Index Ch. 3: Business Model and Strategic Plan

Ch. 3: Business Model and Strategic Plan Competitor Analysis Direct competitors Offer the same products and services Customers often compare prices, features and deals among these competitors when they shop Significant competitors Offer some of the same or similar products or services Product or service lines overlap but not completely Indirect competitors Offer same or similar products in only a small number of areas Ch. 3: Business Model and Strategic Plan

Step 5: Analyze Competitors Analyzing key competitors allows an entrepreneur to: Avoid surprises from existing competitors’ new strategies and tactics. Identify potential new competitors and the threats they pose. Improve reaction time to competitors’ actions. Anticipate rivals’ next strategic moves. Ch. 3: Business Model and Strategic Plan

Step 5: Analyze Competitors Techniques do not require unethical behavior: Monitor industry and trade publications. Talk to customers and suppliers. Debrief employees, especially sales representatives and purchasing agents. Attend trade shows and conferences and study competitors’ sales literature. Watch for competitor’s employment ads. Conduct patent searches for patents competitors have filed. Get EPA reports for the factories of competing manufacturers. Monitor direct competitors via social media Ch. 3: Business Model and Strategic Plan

Step 5: Analyze Competitors (continued) Techniques do not require unethical behavior: Learn about the kinds of equipment and raw materials competitors are importing from the Journal of Commerce Port Import Export Reporting Service. Buy competitors’ products and “benchmark” them. Get competitors’ credit reports. Check out the reports publicly-held competitors must file with the SEC. Investigate UCC reports. Check out the resources in your local library. Use the Internet to learn more about competitors. Visit competing businesses to observe their operations. Ch. 3: Business Model and Strategic Plan

Competitive Profile Matrix Ch. 3: Business Model and Strategic Plan

Is Setting Goals & Objectives Really Important? “Would you tell me, please, which way I ought to go from here?” said Alice. “That depends a good deal on where you want to get to,” said the Cheshire cat. “I don’t much care where.…” said Alice. ‘Then it doesn’t matter which way you go,” said the cat. - Lewis Carroll’s Alice in Wonderland Ch. 3: Business Model and Strategic Plan

Step 6: Create Company Goals and Objectives Goals: Broad, long-range attributes to be accomplished. “BHAGs” Objectives: More detailed, specific targets of performance that are: Specific Measurable Assignable Realistic (yet challenging) Timely Written down Ch. 3: Business Model and Strategic Plan

What Makes an Effective BHAG? Ch. 3: Business Model and Strategic Plan

Step 7: Formulate Strategies Strategy - a road map of the actions an entrepreneur draws up to achieve a company’s mission, goals, and objectives. It is the company’s game plan for gaining a competitive advantage. Ch. 3: Business Model and Strategic Plan

Step 7: Formulate Strategies Three basic strategies: Cost Leadership Strategy? Differentiation Focus Ch. 3: Business Model and Strategic Plan

Three Strategic Options Ch. 3: Business Model and Strategic Plan

Ch. 3: Business Model and Strategic Plan Cost Leadership Goal: to be the low-cost producer in the industry (or market segment). Low-cost leaders have advantages: Reaching buyers who buy on the basis of price The power to set the industry’s price floor. Ch. 3: Business Model and Strategic Plan

Ch. 3: Business Model and Strategic Plan Cost Leadership Cost Leadership works well when: Buyers are sensitive to price changes. Competing firms sell the same commodity products. A company can benefit from economies of scale. Example: Dollar General Ch. 3: Business Model and Strategic Plan

Ch. 3: Business Model and Strategic Plan Differentiation Company seeks to build customer loyalty by positioning its goods or services in a unique or different fashion. Idea is to be special at something customers value. Key: Build basis for differentiation on a distinctive competence, something that the small company is uniquely good at doing in comparison to its competitors. Examples: Vosges-Haut Chocolate, Ice Hotel, and Indigenous Designs Ch. 3: Business Model and Strategic Plan

Ch. 3: Business Model and Strategic Plan Focus Company selects one or more customer segments in a market, identifies customers’ special needs, wants, or interests, and then targets them with a product or service designed specifically for them. Strategy builds on the differences among market segments. Rather than try to serve the total market, the company focuses on serving a niche (or several niches) within that market. Example: Batteries Plus Ch. 3: Business Model and Strategic Plan

Step 8: Translate Strategies into Action Plans Survey of senior executives: Companies achieved only 63% of the results in their strategic plans. Create projects by defining: Purpose Scope Contribution Resource requirements Timing Ch. 3: Business Model and Strategic Plan

Step 9: Establish Accurate Controls Plan establishes the standards against which actual performance is measured. Entrepreneur must: Identify and track key performance indicators. Take corrective action. Ch. 3: Business Model and Strategic Plan

Ch. 3: Business Model and Strategic Plan Balanced Scorecards A set of measurements unique to a company that includes both financial and operational measures. Gives managers a quick, yet comprehensive, picture of a company’s overall performance. Ch. 3: Business Model and Strategic Plan

Ch. 3: Business Model and Strategic Plan Balanced Scorecards Five Perspectives: Customer: How do customers see us? Internal Business: At what must we excel? Innovation and Learning: Can we continue to improve and create value? Financial: How do we look to shareholders? Corporate Citizenship: Do we meet our responsibility to society as a whole, the environment, the community, and other external stakeholders? Ch. 3: Business Model and Strategic Plan

Ch. 3: Business Model and Strategic Plan Balanced Scorecard Ch. 3: Business Model and Strategic Plan

Conclusion The strategic planning process: Begins with the nine steps. Becomes more efficient each time. Teaches entrepreneurial discipline for a higher chance of survival. Ch. 3: Business Model and Strategic Plan 3 - 97