© 2007 Pearson Education. Upper Saddle River, NJ, All Rights Reserved.Mariotti: Entrepreneurship Entrepreneurship Chapter 2 Creating Business from Opportunity: The Economics of One Unit

© 2007 Pearson Education. Upper Saddle River, NJ, All Rights Reserved.Marriotti: Entrepreneurship Market A group of people who may be interested in buying a particular product or service.

© 2007 Pearson Education. Upper Saddle River, NJ, All Rights Reserved.Marriotti: Entrepreneurship 4 Types of Business 1.Manufacturing—makes tangible product 2.Wholesale—buys in bulk from manufacturer; sells smaller quantities to retailers 3.Retail—sells one piece at time to consumers. 4.Service—sells time/expertise to consumers.

© 2007 Pearson Education. Upper Saddle River, NJ, All Rights Reserved.Marriotti: Entrepreneurship The Business Definition The offer—what will you sell? Target market—to whom will you sell? Production and delivery—how will you sell? Before you can start your business, you must define it.

© 2007 Pearson Education. Upper Saddle River, NJ, All Rights Reserved.Marriotti: Entrepreneurship Competitive Advantage What can you do better than the competition that will draw customers to your business? Think about what your customers need. You have unique knowledge of your market!

© 2007 Pearson Education. Upper Saddle River, NJ, All Rights Reserved.Marriotti: Entrepreneurship Competitive Strategy Business definition + competitive advantage = competitive strategy Strategy: plan for outperforming the competition Tactics: ways to carry out strategy

© 2007 Pearson Education. Upper Saddle River, NJ, All Rights Reserved.Marriotti: Entrepreneurship Recipe for Success 1.Understand the needs of your customers. 2.Offer them a sustainable competitive advantage. 3.Deliver a product or service that meets customer needs at a fair price. sustainable = can be kept going over time

© 2007 Pearson Education. Upper Saddle River, NJ, All Rights Reserved.Marriotti: Entrepreneurship 6 Factors of Competitive Advantage 1.Quality 2.Price 3.Location 4.Selection 5.Service 6.Speed/turnaround

© 2007 Pearson Education. Upper Saddle River, NJ, All Rights Reserved.Marriotti: Entrepreneurship Naming Your Business Keep it simple. Don’t use your last name. The best name is one that tells customers what the company does, sells, or makes.

© 2007 Pearson Education. Upper Saddle River, NJ, All Rights Reserved.Marriotti: Entrepreneurship What Are Your Core Beliefs? Beliefs you will use to guide your business. Example: My restaurant will support local organic farmers. Core beliefs affect: -materials you choose -prices you charge -how you treat customers

© 2007 Pearson Education. Upper Saddle River, NJ, All Rights Reserved.Marriotti: Entrepreneurship What Is Your USP? Unique Selling Proposition—what attracts customers away from the competition and toward your business? 1.Compare what your business offers to what competitors offer. 2.Are you at a cost advantage or disadvantage?

© 2007 Pearson Education. Upper Saddle River, NJ, All Rights Reserved.Marriotti: Entrepreneurship Check Out the Competition! The offer Target market Production and delivery capability

© 2007 Pearson Education. Upper Saddle River, NJ, All Rights Reserved.Marriotti: Entrepreneurship Mission Statement A concise statement of: 1.Your strategy 2.Your business definition 3.Your competitive advantage

© 2007 Pearson Education. Upper Saddle River, NJ, All Rights Reserved.Marriotti: Entrepreneurship Entrepreneurs Use Profits: 1.To pay themselves 2.To expand their businesses 3.To start or invest in other businesses Gross profit = price – cost of goods sold

© 2007 Pearson Education. Upper Saddle River, NJ, All Rights Reserved.Marriotti: Entrepreneurship Define Your Unit of Sale Manufacturing—one order (e.g., 100 watches) Wholesale—a dozen (e.g., 12 watches) Retail—one item (e.g., 1 watch) Service—one hour of time (one hour mowing) or one completed task (one lawn mowed) Combination—average sale per customer

© 2007 Pearson Education. Upper Saddle River, NJ, All Rights Reserved.Marriotti: Entrepreneurship Average Sale Per Customer Average sale per customer – average cost of sale per customer Average gross profit per customer

© 2007 Pearson Education. Upper Saddle River, NJ, All Rights Reserved.Marriotti: Entrepreneurship Unit of Sale as a Combination of Different Items

© 2007 Pearson Education. Upper Saddle River, NJ, All Rights Reserved.Marriotti: Entrepreneurship Cost of Goods Sold (COGS) COGS = cost of labor and materials required to make one additional unit COSS (cost of services sold) = cost of labor and materials required to provide one additional unit of service

© 2007 Pearson Education. Upper Saddle River, NJ, All Rights Reserved.Marriotti: Entrepreneurship Economics of One Unit (EOU) Method for seeing if a business can be profitable If one unit of sale is profitable, the whole business is likely to be profitable. Selling price per unit – COGS per unit = Gross profit per unit

© 2007 Pearson Education. Upper Saddle River, NJ, All Rights Reserved.Marriotti: Entrepreneurship Economics of One Unit (EOU) — Manufacturing

© 2007 Pearson Education. Upper Saddle River, NJ, All Rights Reserved.Marriotti: Entrepreneurship Economics of One Unit (EOU) — Wholesale

© 2007 Pearson Education. Upper Saddle River, NJ, All Rights Reserved.Marriotti: Entrepreneurship Economics of One Unit (EOU) — Retail Business

© 2007 Pearson Education. Upper Saddle River, NJ, All Rights Reserved.Marriotti: Entrepreneurship Economics of One Unit (EOU) — Service Business

© 2007 Pearson Education. Upper Saddle River, NJ, All Rights Reserved.Marriotti: Entrepreneurship Economics of One Unit (EOU) — Example

© 2007 Pearson Education. Upper Saddle River, NJ, All Rights Reserved.Marriotti: Entrepreneurship The Entrepreneur’s Strategy: 1.Start a business with a profitable EOU 2.Hire others to create the units 3.Increase volume of units being sold 4.This frees the entrepreneur to start new businesses Result: The entrepreneur creates jobs and wealth.