Chapter 1 – Intro To Entrepreneurship Availability of Finance, Government Policies, Government programs, R&D transfer, physical and human infrastructure, education, training, cultural and social norms, internal market openness Creative Destruction GEM model for the economy Figure 1.1 pg. 13 Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2019 Entrepreneurial Behavior and Attitudes (GEM) Canada https://www.gemconsor tium.org/economyprofiles/canada-2 POLL Everywhere PollEv.com/Everitt GEM - Saskatchewan Please see the pdf file posted to the CH 1 Module “From a list of 12 business issues facing entrepreneurs in Saskatchewan, 4 are currently the most important. A panel of Saskatchewan business experts were asked what would best serve growing a larger base of entrepreneurs in the province. The most important issues in increasing Saskatchewan entrepreneurship are in access to financing, educational programing at the primary and secondary levels, government policies, priority and support, and technology (R&D) transfer” GEM SASKATCHEWAN REPORT 2019 GEM - Saskatchewan “Saskatchewan has a strong entrepreneurial culture. Approximately 75% of those surveyed indicated that entrepreneurship was desirable, respected, and talked about in the province. Canadians overall have positive attitudes about entrepreneurship and the Saskatchewan results about entrepreneurial culture are in similar ranges as those found in Alberta and Manitoba. Only half of Saskatchewan residents think that entrepreneurship is accessible to them. When asked if they personally have the ability and risk tolerance for entrepreneurship and if they know other entrepreneurs, half the respondents say ‘no’ and only 15% say that they considering to start a new business. Results in Alberta and Manitoba show that people in those provinces believe they have a slightly better ability to be entrepreneurs. Ideals are a more important motivator than money. Earning wealth and making money were an important motivator, however a desire to make a difference was noticeably more important for entrepreneurs” GEM SASKATCHEWAN REPORT 2019 This Photo by Unknown Author is licensed under CC BY-SA-NC Case, Saunders GEM Provincial Report for Saskatchewan 2021: How GEM can illuminate policy issues in Saskatchewan. GEM Saskatchewan Report 2021 Case, Saunders GEM Provincial Report for Saskatchewan 2021: How GEM can illuminate policy issues in Saskatchewan. GEM Saskatchewan Report 2021 Pg.1 Case, Saunders GEM Provincial Report for Saskatchewan 2021: How GEM can illuminate policy issues in Saskatchewan. GEM Saskatchewan Report 2021 Pg.42 Ages 18-24 Ages 25-34 Case, Saunders GEM Provincial Report for Saskatchewan 2021: How GEM can illuminate policy issues in Saskatchewan. GEM Saskatchewan Report 2021 Pg.63 Case, Saunders GEM Provincial Report for Saskatchewan 2021: How GEM can illuminate policy issues in Saskatchewan. GEM Saskatchewan Report 2021 Figure 3.2 Pg.64 Case, Saunders GEM Provincial Report for Saskatchewan 2021: How GEM can illuminate policy issues in Saskatchewan. GEM Saskatchewan Report 2021 Figure 3.4 Pg.65,66 Ted Talk – 8 min https://www.youtube.com/watch?v=CzJUCxwz8hk Characteristics of Entrepreneurs “POP” Characteristics Passion Opportunity Seeking Persistence Ron Knowles & Chris Castillo (2017) Small Business (7th edition) Nelson Education, pg 8 Characteristics of Entrepreneurs Vision Willingness to take moderate risks Goals Independence Enjoyment Idea Generators Focused on sales People Orientation Desire to Share Hard working, smart working Ability to get things done Competitive Ron Knowles & Chris Castillo (2017) Small Business (7th edition) Nelson Education, pg 8-10 Ron Knowles & Chris Castillo (2017) Small Business (7th edition) Nelson Education, pg 10 BDC Self Assessment Tool https://www.bdc.ca/en/articles-tools/entrepreneur-toolkit/businessassessments/pages/entrepreneurial-potential-self-assessment.aspx Studying Entrepreneurship Entrepreneurship can be taught ☺ “Involves having students interact with entrepreneurs by interviewing Business Plans them, having them act as mentors, and learning about their experiences Critical Thinking and approaches through class Ethical Assessment discussion” Identification of Opportunities Development & Innovation Expansion Financing Swanson, L.A. (2017) Entrepreneurship and Innovation Toolkit (Third Edition) Saskatoon, SK: University of Saskatchewan https://openpress.usask.ca/entrepreneurshipandinnovationtoolkit/ Chapter 1 – Case Study – MightyWell pg. 33-40 Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2019 Watch this 15 min video MightyWell https://www.businessinnovationfactory.com/video/e mily-levy-transforming-the-patient-experiencethrough-wearable-wellness/. Chapter 1 – Intro To Entrepreneurship POLL Everywhere PollEv.com/Everitt History of Entrepreneurship Exchanging goods/items Selling goods/items Innovation Definition of Entrepreneurship? - Starts a business - Bought a business - Franchise - Hands on - Hands off - Innovative - Not-for-profit “Entrepreneur is the person who perceives an opportunity and creates an organization to pursue it” pg.3 Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2019 GEM = Global Entrepreneurship Monitor Is an annual study of entrepreneurial activity within different companies https://www.gemconsortium.org/ Watch the 3 min video GEM metric = Total Early-stage Entrepreneurial Activity (TEA) TEA = “measures the % of adults (age 18-64) in an economy who are nascent & new entrepreneurs” pg 20 National Entrepreneurship Context Index (NECI), a measure of the ease of starting and developing a business See page 19 of TEXT Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2019 Figure 1.3 pg. 22 Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2019 Entrepreneurial Employee Activity (EEA) – Table 1.1 This tells about the activity going on inside existing businesses Typically “high income countries such as Canada, Ireland, & the US report the highest EEA rates of more than 8% of their adult population.” pg. 20 Nascent entrepreneur A person who is trying to create a new business Have taken at least one step in pursuing it Many of these may not actually develop into a business Necessity-Driven entrepreneurs “those who are pushed into starting businesses because they have no other work options & need a source of income” pg. 20 Opportunity Motivated entrepreneurs “those entering this activity primarily to pursue an opportunity” pg. 20 Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2019 Figure 1.4 pg. 25 Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2019 Owner-Manager “Are owner-managers of a new business that is no more then 3.5 years old” pg. 19 Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2019 Chapter 2 – The Entrepreneurial Process Definitions of Entrepreneurship Types of Entrepreneurship Business Tools and Models HOW Connecting with Entrepreneurs Power point, textbook, memorization Quizzes Simulation Assessments • Value proposition • Communication • Purpose • Impact on other people WHY YOU Reflection Self Discovery Personal Growth 70% • • • • Values Beliefs Passion Purpose Simulation Reflection Assignment This Photo by Unknown Author is licensed under CC BY-NC-ND The Entrepreneurial Process PERSONAL Achievement Locus of control Ambiguity tolerance Risk taking Personal values Education Experience Opportunity recognition INNOVATION ENVIRONMENTAL Opportunities Role models Creativity PERSONAL Risk taking Job dissatisfaction Job loss Education Age Gender Commitment Resources TRIGGERING EVENT SOCIOLOGICAL Networks Teams Parents Family Role models Advisors IMPLEMENTATION ENVIRONMENTAL Economy Competition Resources Incubator Government policy PERSONAL Entrepreneur Leader Manager Commitment Vision ORGANIZATIONAL Team Strategy Structure Culture Products GROWTH ENVIRONMENTAL Competitors Customers Suppliers Investors Bankers Lawyers Resources Governmental Policy Economy Figure 2.1 Pg. 43 Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 3 Crucial Components of Success Uncertainty Entrepreneur Opportunity Fits & Gaps Business planning Uncertainty Uncertainty Resources The Timmons Model Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 4 The Entrepreneur and the TEAM Entrepreneurial Process - Resources 1st question – what resources are crucial for the company’s success? Employees Expertise Location Etc. Are there pieces that can be outsourced/subcontracted? Start-Up Capital Debt vs Equity Key Forms of Start Up Capital Debt No transfer of company ownership Potentially higher risk for the entrepreneur Requires repayment, and therefore careful cash flow planning Equity • Investors gain an ownership stake • Investor takes most risk, which explains the costs and expected returns • No repayment, but requires careful capital planning and investment Remember: Most companies will never take on outside investors, and many will never use debt financing for growth. Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 9 Savings Sweat Equity Family & Friends Informal Investor / Angel Investor Bank – Loan or LOC Venture Capital Stock Offerings A Sample Financing Path Personal Savings & Sweat Equity Angel Investment Bank & SBA Loans Initial Public Offering Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© Venture Capital 11 How much Profit? “On average, US companies make 5% net income” pg. 56 $1 revenue = 0.05 profit (after expenses and taxes) This is where the first part of our course started.. An entrepreneur needs to be realistic about how much revenue it will take to replace an employable income. If a company has a 10% profit margin it is doing well & 15% is exceptional pg. 56 How much cash….. This Photo by Unknown Author is licensed under CC BY Self Reflection – pg 59. This Photo by Unknown Author is licensed under CC BY-SA Chapter 2 – The Entrepreneurial Process Definitions of Entrepreneurship Types of Entrepreneurship Business Tools and Models HOW Connecting with Entrepreneurs Power point, textbook, memorization Quizzes Simulation Assessments • Value proposition • Communication • Purpose • Impact on other people WHY YOU Reflection Self Discovery Personal Growth 70% • • • • Values Beliefs Passion Purpose Simulation Reflection Assignment This Photo by Unknown Author is licensed under CC BY-NC-ND BDC Self Assessment Tool https://www.bdc.ca/en/articles-tools/entrepreneur-toolkit/businessassessments/pages/entrepreneurial-potential-self-assessment.aspx Entrepreneurial Process Includes all functions, activities, & actions that are part of perceiving opportunities & creating organizations to pursue them (pg. 41) The Entrepreneurial Process PERSONAL Achievement Locus of control Ambiguity tolerance Risk taking Personal values Education Experience Opportunity recognition INNOVATION ENVIRONMENTAL Opportunities Role models Creativity PERSONAL Risk taking Job dissatisfaction Job loss Education Age Gender Commitment Resources TRIGGERING EVENT SOCIOLOGICAL Networks Teams Parents Family Role models Advisors IMPLEMENTATION ENVIRONMENTAL Economy Competition Resources Incubator Government policy PERSONAL Entrepreneur Leader Manager Commitment Vision ORGANIZATIONAL Team Strategy Structure Culture Products GROWTH ENVIRONMENTAL Competitors Customers Suppliers Investors Bankers Lawyers Resources Governmental Policy Economy Figure 2.1 Pg. 43 Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© Tools for Opportunity Recognition Murphy – search and serendipitous discovery Serendipity = fate, chance, karma, luck Deliberation = discussion, planning, thought Tools for Opportunity Recognition Vesper – practice idea generation techniques (1996) Ways to find entrepreneurial ideas Prior Job Recreation searching by asking discovery questions like “what is it I don’t like about this product/service” Find ways to stop things from blocking your creativity 80% of entrepreneurs founded their business in industries that they have experience in (pg.44) Tactics for generation Brainstorming Considering multiple consequences of possible future events Changing ideas Developing scenarios Look for Trends Watch how the world is shifting What is important? Where is the next trend? Ron Knowles & Chris Castillo (2017) Small Business (7th edition) Nelson Education, pg 39 Design Thinking – 4 min Design Thinking http://dschool.stanford.edu/our-point-of-view/ The Entrepreneurial Process PERSONAL Achievement Locus of control Ambiguity tolerance Risk taking Personal values Education Experience Opportunity recognition INNOVATION ENVIRONMENTAL Opportunities Role models Creativity PERSONAL Risk taking Job dissatisfaction Job loss Education Age Gender Commitment Resources TRIGGERING EVENT SOCIOLOGICAL Networks Teams Parents Family Role models Advisors IMPLEMENTATION ENVIRONMENTAL Economy Competition Resources Incubator Government policy PERSONAL Entrepreneur Leader Manager Commitment Vision ORGANIZATIONAL Team Strategy Structure Culture Products GROWTH ENVIRONMENTAL Competitors Customers Suppliers Investors Bankers Lawyers Resources Governmental Policy Economy Figure 2.1 Pg. 43 Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© Factors Influencing an Entrepreneur Personal Attributes Higher internal locus of control Desire for financial success Desire to achieve self-realization Desire for recognition Joy of innovation Risk tolerance Environmental Factors • Local, regional, or national attitudes • Social and cultural pressures for or against risk taking • Access to entrepreneurial role models • Responsibilities to family and community Remember: No single type of person is best suited for entrepreneurship. Entrepreneurs come from all walks of life! Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 13 The Entrepreneurial Process PERSONAL Achievement Locus of control Ambiguity tolerance Risk taking Personal values Education Experience Opportunity recognition INNOVATION ENVIRONMENTAL Opportunities Role models Creativity PERSONAL Risk taking Job dissatisfaction Job loss Education Age Gender Commitment Resources TRIGGERING EVENT SOCIOLOGICAL Networks Teams Parents Family Role models Advisors IMPLEMENTATION ENVIRONMENTAL Economy Competition Resources Incubator Government policy PERSONAL Entrepreneur Leader Manager Commitment Vision ORGANIZATIONAL Team Strategy Structure Culture Products GROWTH ENVIRONMENTAL Competitors Customers Suppliers Investors Bankers Lawyers Resources Governmental Policy Economy Figure 2.1 Pg. 43 Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© CH 10 – The Entrepreneurial Environment Ecosystem Complex adaptive system - Many elements - Co-inhabiting & thriving - Changes (new species) This Photo by Unknown Author is licensed under CC BY-NC-ND state 1 → state 2 = bifurcation Parameter change = something substantial happens This Photo by Unknown Author is licensed under CC BY-SA Entrepreneurial Ecosystem Parameter change → spin off business This Photo by Unknown Author is licensed under CC BY-SA Stable Some thriving, some not Complex Independent elements Continually adaptive Entrepreneurial Ecosystem Includes all that the entrepreneur directly or indirectly interacts with - suppliers, customers, organizations Internal Ecosystem → internal operations Researchers study how entrepreneurial ecosystems cluster and can facilitate growth Silicon Valley 1.Apple 2.Google 3.Facebook 4.Wells Fargo 5.Visa 6.Chevron This Photo by Unknown Author is licensed under CC BY-ND Innovation Place http://www.innovationplace.com/parks/saskatoon.php “The Saskatoon campus began operations in 1980 and is located adjacent to the University of Saskatchewan. Innovation Place builds on the University's strengths in agriculture, information technology, and environmental and life sciences, as well as the strengths of nearby federal and provincial agencies. Innovation Place is home to 110 tenants, employing over 2,500 people. The technology park includes 20 buildings with 1.3 million square feet of space. A Co-Working Space, offering shared workspace for the tech development community, and Co.Labs, Saskatchewan's first technology incubator, are located in the Concourse building.” This Photo by Unknown Author is licensed under CC BY-SA The Entrepreneurial Process PERSONAL Achievement Locus of control Ambiguity tolerance Risk taking Personal values Education Experience Opportunity recognition INNOVATION ENVIRONMENTAL Opportunities Role models Creativity PERSONAL Risk taking Job dissatisfaction Job loss Education Age Gender Commitment Resources TRIGGERING EVENT SOCIOLOGICAL Networks Teams Parents Family Role models Advisors IMPLEMENTATION ENVIRONMENTAL Economy Competition Resources Incubator Government policy PERSONAL Entrepreneur Leader Manager Commitment Vision ORGANIZATIONAL Team Strategy Structure Culture Products GROWTH ENVIRONMENTAL Competitors Customers Suppliers Investors Bankers Lawyers Resources Governmental Policy Economy Figure 2.1 Pg. 43 Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© Before Committing, Entrepreneurs Must 1. 2. Assess their own financial reality • Live with little or no salary? • What external financial commitments are there? Identify key contacts in their networks • 3. Take an inventory of the resources in one’s network Reach out to sources of free advice and feedback • Who can help or advise? Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 24 The Entrepreneurial Process PERSONAL Achievement Locus of control Ambiguity tolerance Risk taking Personal values Education Experience Opportunity recognition INNOVATION ENVIRONMENTAL Opportunities Role models Creativity PERSONAL Risk taking Job dissatisfaction Job loss Education Age Gender Commitment Resources TRIGGERING EVENT SOCIOLOGICAL Networks Teams Parents Family Role models Advisors IMPLEMENTATION ENVIRONMENTAL Economy Competition Resources Incubator Government policy PERSONAL Entrepreneur Leader Manager Commitment Vision ORGANIZATIONAL Team Strategy Structure Culture Products GROWTH ENVIRONMENTAL Competitors Customers Suppliers Investors Bankers Lawyers Resources Governmental Policy Economy Figure 2.1 Pg. 43 Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 3 Crucial Components of Success Uncertainty Entrepreneur Opportunity Fits & Gaps Business planning Uncertainty Uncertainty Resources The Timmons Model Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 26 “luck is where preparation and opportunity meet” (pg. 49) Tenets of the Timmons Model The Opportunity 1. • • • Is there a clear customer need? Is the timing right: team ready, market ready? Combine these factors with the execution of the business plan to make an idea an opportunity The Lead Entrepreneur and Management Team 2. • • • Experience within the proposed industry? Investors prefer to see a track record of driving growth and profits An ‘A’ team with a ‘B’ idea is almost always better than the opposite The Resources 3. • • • Capital, technology, equipment, and most importantly – people Low overhead, high productivity, and controlling, but not owning resources Find ways to get things done faster, cheaper or better! Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 28 The Entrepreneurial Process PERSONAL Achievement Locus of control Ambiguity tolerance Risk taking Personal values Education Experience Opportunity recognition INNOVATION ENVIRONMENTAL Opportunities Role models Creativity PERSONAL Risk taking Job dissatisfaction Job loss Education Age Gender Commitment Resources TRIGGERING EVENT SOCIOLOGICAL Networks Teams Parents Family Role models Advisors IMPLEMENTATION ENVIRONMENTAL Economy Competition Resources Incubator Government policy PERSONAL Entrepreneur Leader Manager Commitment Vision ORGANIZATIONAL Team Strategy Structure Culture Products GROWTH ENVIRONMENTAL Competitors Customers Suppliers Investors Bankers Lawyers Resources Governmental Policy Economy Figure 2.1 Pg. 43 Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© Timing This Photo by Unknown Author is licensed under CC BY-NC-ND TODAY’S PLAN Schedule Check In Assignment 1 Check In Chapter 3 SCHEDULE Today TODAY’S PLAN Schedule Check In Assignment 1 Check In Chapter 3 TODAY’S PLAN Schedule Check In Assignment 1 Check In Chapter 3 Chapter 3 – Opportunity Recognition, Shaping, & Reshaping So why do people choose to be an entrepreneur? The reward of independence The reward of profit The reward of satisfaction Longenecker, Donlevy, Champion, Petty, Palich, Hoy (2016) Small Business Management (6th Edition) Nelson Education pg. 7,10 Longenecker, Donlevy, Champion, Petty, Palich, Hoy (2016) Small Business Management (6th Edition) Nelson Education pg. 11 What are some drawbacks? Costs Hard work Long hours LOTS of emotional energy “According to the Psychology of Business Owners Report by BMO, 1/5 of business owners work an average of 51 hours a week, and up to 60 hours, and 70% would like to be able to spend more time with their family” (Longenecker, Donlevy, Champion, Petty, Palich, Hoy (2016) Small Business Management (6th Edition) Nelson Education pg. 10) Personal Stress Possibility of business failure as a threat Longenecker, Donlevy, Champion, Petty, Palich, Hoy (2016) Small Business Management (6th Edition) Nelson Education pg. 10 Visualizing Opportunity Find Your Passion See the Competition Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© Test the Market 14 Definitions of Entrepreneurship Types of Entrepreneurship Business Tools and Models HOW Connecting with Entrepreneurs Power point, textbook, memorization Midterm, Assignments & Simulation • Value proposition • Communication • Purpose • Impact on other people WHY Assignment 1 YOU Reflection Self Discovery Personal Growth Simulation 70% • • • • Values Beliefs Passion Purpose Simulation Reflection Assignment This Photo by Unknown Author is licensed under CC BY-NC-ND See Yourself Experience & Knowledge Time Energy Passion Personality Seed Resources Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© Capital ($) 16 Visualizing Opportunity Find Your Passion See the Competition Test the Market • How do you spend your spare time? • What activities provide you with happiness? • Talk to people in your sphere of influence. • How are customers currently meeting the need that you propose to fill? • Can you differentiate between your direct and indirect competition? • Is this an attractive opportunity? • A series of Market Tests will allow you to gauge the viability of your opportunity. Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 17 Idea-to-Opportunity Transition Seed of an idea Professional Experience Passion Idea Idea Multiplication Viable Opportunity Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 18 Idea Multiplication: IDEO Technique Optimize Practicality • Brain storm /write • No judging • Observe • Ask • Record Multiply Stimuli Create Concepts • Observe • Ask • Record • Build a simple mock-up • Plan to iterate Gather Stimuli Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 19 Idea Multiplication: IDEO Technique Optimize Practicality • Brain storm /write • No judging • Observe • Ask • Record Multiply Stimuli Create Concepts • Observe • Ask • Record • Build a simple mock-up • Plan to iterate Gather Stimuli Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 20 Where does your idea take place? Entrepreneurial Economies - Bazaar Grand Bazaar in Istanbul, Turkey Entrepreneurial Economies Bazaar-Type Economy It is a way of life, a cultural and social system. Although it is a mode for commercial activity, relationships and alliances are the focus of the activities, not the financial transactions. The lowest price and the best quality are less important to purchasers because they often consider the vendor as a friend they wish to help, and someone who will help them in return. Entrepreneurial Economies Bazaar-Type Economy Buyers and sellers seek to maintain long-term relationships with each other, and there is little or no concern with maximizing profits. Vendors do not consider other vendors to be rivals, and there is little interest or advantage in differentiating the products offered from those sold by others. Entrepreneurial Economies Bazaar-Type Economy Prices are established through negotiation, with buyers often making the first offer of a price. Competitive tensions are between buyers and sellers rather than between sellers. Once relationships are established (which reduces transaction costs) both buyers and sellers tend to have high degrees of satisfaction with the transactions. Entrepreneurial Economies – Firm-Type Entrepreneurial Economies Firm-Type Economy Our firm-consumer transactions are impersonal. The focus is on the interaction between the buyer and the product rather than between the buyer and seller. Product attributes are considered to be important. Relationships between buyers and sellers are trivial and secondary as compared to the transaction itself. Entrepreneurial Economies Firm-Type Economy We presume that our firms engage in transactions while attempting to maximize profits through rational decisionmaking. Competition in our context is between sellers who attempt to segment the market based on types of consumers. Sellers generally set prices consumers are expected to accept and pay. The premise is that firms treat all customers equally. Entrepreneurial Economies – The New Economy Entrepreneurial Economies The New Economy Our firms no longer treat all consumers equally. Some customers receive special promotional offers, preferential treatment, and other benefits over other customers. Differentiation be. is less evident than it used to Entrepreneurial Economies The New Economy The focus has shifted (back) toward establishing relationships with consumers. Different prices are charged depending upon the nature of the relationship the firm has with the customer. It appears there is now less competition than before with former rivals now cooperating through networks and global alliances. Entrepreneurial Economies Entrepreneurial Economies The New Economy The Internet has become a medium through which transactions occur; reducing searching costs for consumers and, in some cases, inventory handling and production costs for firms. In some cases, consumers suggest the starting price in a negotiation process. Entrepreneurial Economies The New Economy In many ways, this new “reality is shared with the Bazaar-type Economy – a social and cultural system, a way of life and a general mode of commercial activity such that most of the flow of commerce is centred on relationships” (Dana, et al., 2008, p. 115). The Sharing Economy Also called (or related to): Collaborative GIG Consumption Economy Crowd-Based Peer Capitalism Economy On-Demand Circular Economy Economy The Sharing Economy Handy Man Rentals Six ways companies could benefit by engaging in the sharing economy (Matzler, et al., 2015) Sell use of a product rather than ownership of it Provide customers with opportunity to resell products Exploit unused resources and capacities Provide repair and maintenance services Use Airbnb Kijii Patagonia https://wornwear.patagoni a.com/repair-andcare#/Topic/Basic_Sewing collaborative consumption to target new customers Develop new business models enabled by collaborative consumption Wolf Willow Cohousing https://www.cohousingcons ulting.ca/proj%20Ww.html The Sharing Economy The Opportunity Space (Global) Business Environment Competitors Suppliers Your Company Customers Competitors Competitors Government Regulations Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 38 Canada = Entrepreneurial Hotbed 80 percent of all entrepreneurs say that starting a business was their best career decision. Copyright © 2017 by Nelson Education Ltd. Ron Knowles & Chris Castillo (2017) Small Business (7th1-39edition) Nelson Education Canada = Entrepreneurial Hotbed Copyright © 2017 by Nelson Education Ltd. Size of business = number of employees 57% of employer businesses are microbusinesses = 1-4 employees Ron Knowles & Chris Castillo (2017) Small Business (7th 1-40 edition) Nelson Education, pg 6 Table 1.3 Number of Private Sector Employees by Industry & Size of Business Enterprise, 2011 Ron Knowles & Chris Castillo (2017) Small Business (7th edition) Nelson Education, pg 9 Environment Statistics Canada https://www.statcan.gc.ca/eng/start Essential Initial Research Societal, Bank of Canada https://www.bankofcanada.ca/ industry, market, firm Government of Canada – Industry High level https://www.ic.gc.ca/app/scr/app/ci s/search-recherche ➢ Secondary Scans ➢ Operational, marketing, finance IBIS World Report https://www.ibisworld.ca/ BDC https://www.bdc.ca Etc. Lots of places to look….. Canada’s Information Resource Cnetre (CIRC) Nielsen (retail stores) Canadian Company Capabilities Federal Corporations Data Online Industry Canada, Business Information by Sector Industry Canada, Canadian Industry Statistics Trade Data Online Canadian Importers Database Ron Knowles & Chris Castillo (2017) Small Business (7th edition) Nelson Education Lots of places to look….. Tax information for Small Business – CRA “Guide for Canadian Small Business” Canada Business: Government Services for Entrepreneurs – www.cbsc.org Canadian Council for Small Business & Entrepreneurship – www.ccsbe.org Canadian Innovation Centre Futurpreneur Canada Etc…… Longenecker, Donlevy, Champion, Petty, Palich, Hoy (2016) Small Business Management (6th Edition) Nelson Education pg. 124-125 The Opportunity Space (Global) Business Environment Competitors Suppliers Your Company Customers Competitors Competitors Government Regulations Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 45 The Customer Target Audience Categories Primary Target Audience Secondary Target Audience Tertiary Target Audience Common Demographic/Psychographic Categories Demographics • • • • • • • • • • • Age Gender Household Income Family Size/Family Lifecycle Occupation Education Level Religion Ethnicity/Heritage Nationality Social Class Marital Status Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© Psychographics • • • • Social group (white collar, blue collar, etc.) Lifestyle (mainstream, sexual orientation, materialistic, active, athletic, etc.) Personality Traits (worriers, type-A’s, shy, extroverted, etc.) Values (liberal, conservative, openminded, traditional, etc.) 46 Macro Trends: Last 50 years Trend Impact Dual Income Households Child care, In-Home Services – landscaping, housecleaning, prepared meals Touch Computing Tablet computers and eReaders—iPad, Amazon Kindle Fire, Samsung Galaxy, Motorola Xoom. Touch-based operating systems—Windows 8 and Mac OS X Lion Obesity Drain on healthcare system, growth of diet industry, changes in food industry, health clubs, home gyms Sharing Economy Connecting people to excess capacity, like Uber, Lyft, AirBnB Urbanization Growth and densification of urban areas. Urban renewal. Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 47 The Value Chain: Reaching Customers This Photo by Unknown Author is licensed under CC BY-NC Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 48 The Opportunity Space (Global) Business Environment Competitors Suppliers Your Company Customers Competitors Competitors Government Regulations Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 49 S-Curve: Market Adoption The Diffusion of Product Acceptance Over Time 1 2 3 Time Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 50 Setting Prices Price Penetration Pricing Strategy Cost-plus Pricing Strategy Assessing Market Prices for Competing Products Strategy Requires Enormous Financing Price May Not Match The Value The Best Option Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 51 Firm Level Trend Analysis – Assessing the financial attractiveness of the venture Financial projections Financial analysis Expected Margins Break-even point Projected Market share ROI (Return on Investment) Sensitivity? – what can impact Competition The Opportunity Space (Global) Business Environment Competitors Suppliers Your Company Customers Competitors Competitors Government Regulations Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 53 Competitors This Photo by Unknown Author is licensed under CC BY-SA Opportunity Checklist Customer Competition Vendors Government Global Environment Trends Market size Price, Frequency, Value Market Growth Distribution Key Success Factors Evaluate your idea to see if it is a strong opportunity. Evaluate several ideas simultaneously to see which is most promising. Examine weaknesses and see how you can modify your business model. Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 55 Definitions of Entrepreneurship Types of Entrepreneurship Business Tools and Models HOW Connecting with Entrepreneurs Power point, textbook, memorization Midterm, Assignments & Simulation • Value proposition • Communication • Purpose • Impact on other people WHY Assignment 1 YOU Reflection Self Discovery Personal Growth Simulation 70% • • • • Values Beliefs Passion Purpose Simulation Reflection Assignment This Photo by Unknown Author is licensed under CC BY-NC-ND Chapter 5 – The Importance of Business Models So you have lots of ideas…… This Photo by Unknown Author is licensed under CC BY-NC-ND Ron Knowles & Chris Castillo (2017) Small Business (7th edition) Nelson Education, pg 73 Definitions of Entrepreneurship Types of Entrepreneurship Business Tools and Models HOW Connecting with Entrepreneurs Power point, textbook, memorization Midterm, Assignments & Simulation • Value proposition • Communication • Purpose • Impact on other people WHY Assignment 1 YOU Reflection Self Discovery Personal Growth Simulation 70% • • • • Values Beliefs Passion Purpose Simulation Reflection Assignment This Photo by Unknown Author is licensed under CC BY-NC-ND Business Models -how businesses work -the activities involved in the business Start ups are not smaller versions of large companies M T W TH F S Su Start-ups Start-up →“a human institution designed to create a new product or service under conditions of extreme uncertainty” (Ries 2011 pg.27) Lean Start-up → “releasing a minimal viable product to customers with the expectation that this early prototype will change and evolve.” (Swanson 2017 pg 43). Relies on customer feedback. 1st = Business Model 2nd = Business Plan Ries’s (2011) 5 lean start-up Principles 1. Entrepreneurs are everywhere. The drive to create. 2. An institution that is managed to promote growth 3. “how to build a sustainable business” → Validation through frequent prototyping 4. Work on feedback loops 5. Measured by innovative accounting “Create a dashboard designed to display your metrics clearly and simply. Here’s an example of a Level 1 dashboard looking at the first experiment done by a team building a lemonade stand and hoping for hypergrowth through the use of drone delivery and premium ingredients down the road:” 2018 IDEO https://www.ideou.com/blogs/inspiration/innovationaccounting-what-it-is-and-how-to-get-started Ron Knowles & Chris Castillo (2017) Small Business (7th edition) Nelson Education, pg 85 Business Model Creation “stories that explain how enterprises work” Margretta (2002 pg.87) *page 38 “A business is about selling what you make for a profit. A business model is a configuration (activity system) of what the business does (activities) and what it invests in (resources) based on the logic that drives the profits for a specific business” Chatterjee (2013 pg.97) *page 39 https://canvanizer.com/thenextlevel14/?utm_source=newcanvas&utm_medium=link_page&utm_campaign =preview Business Model Canvas (The Lean Start-Up) Business Model Canvas http://www.businessmodelgeneration.com/canvas Business model generation book http://www.businessmodelgeneration.com/downloads/businessmodelgeneration _preview.pdf 6 min GrowthWheel http://www.growthwheel.com/ https://www.growthwheel.com/whatisgrowthwheel/ View after class Franchises as Business Models Business models sold to entrepreneurs Franchise fees “Quick” set up Support Team Franchise Terminology “Franchisor – the firm that sells the rights to do business under its name and continues to control the business Franchisee – the individual who is licensed to operate under the franchisor’s rules & directives Business Format Franchise – a type of franchise in which the product, method of distribution, & sales & management procedures are highly controlled Dealership Relationship Franchise – also called a “licensing or associate relationship”, a type of franchisee buys the right to distribute a franchisor’s product or service” (Knowles & Castillo Small Business pg 399) Tim Hortons Home Hardware Ron Knowles & Chris Castillo (2017) Small Business (7th edition) Nelson Education, pg 399 Franchise 5 min https://www.cfa.ca/ VIDEOS : https://cfa.ca/ https://www.cfa.ca/franchisecanada/franchise-canada-tv/ Longenecker, Donlevy, Champion, Petty, Palich, Hoy (2016) Small Business Management (6th Edition) Nelson Education pg. 121 PART 2…… POLL EVERYWHERE PollEv.com/Everitt Survey TODAY’S PLAN Schedule Check In Chapter 5 Chapter 8 4 min ZUMBA https://www.inc.com/video/alberto-perlman/why-zumba-ceo-went-from-tech-leader-todance-entrepreneur.html Chapter 5 – Part 2 What a Business Plan Should Do? Effectively communicate to the targeted reader what they need to know so they will behave as desired (i.e. so they will invest, etc.) Build and maintain credibility so the targeted reader believes what is in the plan What a Business Plan Should NOT Do? It must AVOID: Focusing way too much on the product or service and downplaying the market needs or acceptance Showing financial projections that are at odds with accepted industry norms (or are at odds with what the written part of the business plan says) Showing unrealistic growth projections Internal vs External Business Plans Internal → Strategy, vision, implementation of initiatives, measure & control tools, framework for analysis External → financing requests, personnel recruitment, valuation of the business External Purposes for a Business Plan Provides a credible overview for prospective customers, suppliers, and investors Helps secure favorable credit terms from suppliers Provides a way to approach lenders and other sources of financing External Purposes for a Business Plan The business plan is often the main method of describing a company to external audiences such as potential sources for financing and key personnel being recruited It should assist outside parties to understand the current status of the company, its opportunities, and its needs for resources such as capital and personnel It provides the most complete source of information for valuation of the business Critical Issues in Preparing the Business Plan Factors affecting the extent of the plan Its purpose Cost in time and money to prepare the plan Management style and ability Preferences of the management team Complexity of the business Competitive environment Level of uncertainty Critical Issues in Preparing the Business Plan Both primary and secondary research must be carried out in the preparation of the business plan. Secondary Research secondary published sources books, published reports, newspaper, journal articles, statistics databases, catalogues, price lists, and Internet sites Primary Research derived directly from people experts in the field, professionals such as lawyers and accountants, industry contacts such as trade association representatives or suppliers and potential customers Business Plan Credibility Team Members Elaboration – who is doing what, who is responsible for what Scenario Integration – build different paths & actions Financial Link – research & analysis need to support financial projections Seal the Deal – be realistic and include everything This Photo by Unknown Author is licensed under CC BY-NC-ND Business Plan Guidelines Easy to read & follow Well thought out Everything is linked Everything supports itself Essential Components of a Business Plan Common Sections and Content The common sections mainly indicate how the business plan is organized and what headings are expected in a business plan. A business plan must also include content that might not fall under a particular heading, for example, a business plan must clearly indicate what the business model is even though the information indicating this might be contained within several sections. Essential Components of a Business Plan Common Sections Front Matter (Cover page, Executive Summary, Table of Contents, List of Tables, List of Figures, Introduction, description of business idea, vision, mission, values, major goals) Analysis of Operating Environment (Trend, Industry, Organizational-level analyses) [these analyses might be placed within other sections of the plan rather than comprising their own section of the plan] Essential Components of a Business Plan Common Sections Operations Plan Human Resources Plan Marketing Plan Market Analysis Competition Marketing Strategy (based upon the 4 Ps) http://www.businessstudynotes.com/marketing/principle-of-marketing/4ps-of-marketing-mix/ Essential Components of a BP Common Sections Financial Plan Overview (written section) Proforma statements (cash flow, income statements, balance sheets) Investment Analysis Ratios with analysis comparing them to industry standard ratios References Appendices A=L+E *A-L=E https://www.accountingcoach.com/balance-sheet/explanation/4 Sample Business A Assets Liabilities Cash $2,000.00 Short Term Loan $4,000.00 Inventory $6,000.00 Long Term Loan $7,000.00 Total Liabilities $11,000.00 Supplies Equipment $500.00 $3,000.00 Equity Retained Earnings Total Assets $11,500.00 Total Liabilities & Eqity $500.00 $11,500.00 Sample Income & Expenses Report Business B Income Sales $12,000.00 Expenses Insurance Advertising Employee Benefits $600.00 $1,000.00 $0.00 Interest & Bank Charges $560.00 License & Permits $200.00 Meals $100.00 Office Expenses $500.00 Rental Expenses $1,200.00 Contract Fees $1,000.00 Phone $840.00 Travel $0.00 Wages $0.00 Accounting $500.00 $6,500.00 Net Income Before Taxes $5,500.00 Revenue-Expenses = Net Income Business B Projections Income Expenses 2019 2020 $13,200.00$14,520.00 $7,150.00 $7,865.00 2021 $15,972.00 $8,651.50 2022 $17,569.20 $9,516.65 2019 Insurance Advertising Employee Benefits Interest & Bank Charges License & Permits Meals Office Expenses Rental Expenses Contract Fees Phone Travel Wages $600.00 $1,000.00 $0.00 $560.00 $200.00 $100.00 $500.00 $1,200.00 $1,000.00 $840.00 $0.00 $0.00 2023 $19,326.12 $10,468.32 2020 2024 $21,258.73 $11,515.15 2021 2022 2023 2024 Make realistic predictions Business C Income vs Expenses $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0 2019 2020 2021 2022 Income Expenses 2023 2024 2025 Useful Resources Useful Resources http://www.bizpal.ca/ Developing a High Power Business Plan ➢ Essential Initial Research ➢ Environmental Scan – societal, industry, market, firm level ➢ Identify trends ➢ Determine market need ➢ Lend information about positioning Swanson, L.A. (2017) Entrepreneurship and Innovation Toolkit (Third Edition) Saskatoon, SK: University of Saskatchewan Figure 5 – pg 53 Developing a High Power Business Plan ➢ Business Model – revenue streams, cost structure, customer segments, value propositions, key activities, key partners **look to the Business Model Canvas ➢ Possible lean start-up launch ➢ Learning from research & adapting as necessary Developing a High Power Business Plan ➢ ➢ ➢ ➢ ➢ Business Plan Draft Mission Vision Values Value proposition Preliminary set of goals Operations, human resources, marketing, financial plans Figure 5 – pg 53 Developing a High Power Business Plan ➢ Making the Business Plan Realistic ➢ Make adjustments ➢ May have to adjust business model, financials, HR, etc Developing a High Power Business Plan ➢ Making the Business Plan appeal to target ➢ Who are you targeting? ➢ What are you offering? ➢ Is it appealing to the group? ➢ Goals Developing a High Power Business Plan ➢ ➢ ➢ ➢ Finishing the Business Plan Math works Links work Executive summary added Figure 5 – pg 53 Business Plan Document What is all involved with getting this off the ground?? ➢ Can be 1 -3 pages ➢ First impressions ➢ Usually written last ➢ AKA: Business Idea, Introduction ➢ Purpose of the Business Plan ➢ History ➢ Business Structure Business Structure Sole Proprietorship Partnership Limited Partnership Corporation Cooperative ➢ Vision → inspire ➢ Where you want to see the company go ➢ Mission → what you do and why ➢ Values → the foundation, what the company believes in ➢ Defines how people behave & interact ➢ Defines & shapes culture ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ SMART Goals → Specific Measurable Action – Oriented Realistic Timely RUMBA → Realistic Understandable Measurable Believable Achievable ➢ Trend Analysis → PESTEL (political economic, social, technological, environmental) ➢ Industry Analysis → Five Forces Model ➢ Competitor Analysis – direct and indirect *include competitor positioning map ➢ Customer Profiles ➢ Target Market https://www.cgma.org/resources/tools/essential-tools/porters-five-forces.html Competitor Positioning Map ➢ Facility Plans? ➢ Operating capacity? ➢ Outsource? ➢ Zoning? ➢ Transportation? ➢ Expansion? START UP ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ Naming Zoning Testing systems Securing purchase orders Supplier agreements Banking arrangements Legal & accounting Equipment Design of LOGO, etc Insurance Inventory Etc ➢ Organizational Structure → Boards? Organizational Chart ➢ Corporate Culture ➢ Key positions ➢ Employees ➢ Recruitment strategy – include costs ➢ Leadership strategy ➢ Wages & performance evaluations ➢ Payroll costs including benefits ➢ Outsourcing? ➢ Contracts? – costs? Organized like a start up – Apple (2min) https://www.youtube.com/watch?v=f60dheI4ARg ➢ OH&S ➢ Legislative responsibilities ➢ Scheduling ➢ Supplies ➢ Orientation ➢ Training ➢ Key personnel and their bios ➢ Roles and responsibilities ➢ Leadership & Management strategies ➢ Marketing Plan ➢ Needs to align and support findings during analysis ➢ SWOT & TOWS ➢ Product Strategy – positioning ➢ Pricing Strategy → how will you process payments (include in financials as well) ➢ Distribution (ex. Ecommerce) ➢ Promotions Strategy – how will you pull customers ➢ Budgets ➢ Roll out plans ➢ Designs & supplies ➢ Mediums (print, facebook, etc) $ ➢ Operational Controls; cash flow ➢ Wages – CPP, EI, holiday pay, etc ➢ Budgets – Training, equipment, leadership goals ➢ Sales Forecasts (linked to marketing) ➢ Marketing Budget ➢ Pro forma statements ➢ Investment Analysis ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ Sensitivity Analysis Plans Adjustments Business Plan updates Commitment to investors Communication Strategies Targets Financial Contingency Plans ➢ Spreadsheets, etc. This Photo by Unknown Author is licensed under CC BY-NC-ND TODAY’S PLAN Schedule Check In Chapter 11 Chapter 6 ChatGTP ➢ Trend Analysis → PESTEL (political economic, social, technological, environmental) ➢ Industry Analysis → Five Forces Model ➢ Competitor Analysis – direct and indirect *include competitor positioning map ➢ Customer Profiles ➢ Target Market https://www.cgma.org/resources/tools/essential-tools/porters-five-forces.html EVALUATING THE ENVIRONMENT PESTEL Analysis Political influences Economic influences Social influences Technological influences Environmental influences Legal influences WHERE ARE THE OPPORTUNITIES AND THREATS? PESTEL PORTERS FIVE FORCES Bargaining power of Suppliers Threat of New Entrants Intensity of Rivalry Threat of Substitutes Bargaining power of Customers Chapter 6 – Entrepreneurial Marketing Marketing Defined… An organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders. - American Marketing Association Marketing practices vary depending on the type of company and the products and services it sells. Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 7 Definitions of Entrepreneurship Types of Entrepreneurship Business Tools and Models HOW Connecting with Entrepreneurs Power point, textbook, memorization Midterm, Assignments & Simulation • Value proposition • Communication • Purpose • Impact on other people WHY Assignment 1 YOU Reflection Self Discovery Personal Growth Simulation 70% • • • • Values Beliefs Passion Purpose Simulation Reflection Assignment This Photo by Unknown Author is licensed under CC BY-NC-ND Marketing is Critical Establishes a customer market ❑ Differentiates product or service to customers ❑ Gains customer acceptance ❑ Cultivates loyalty ❑ Incites trial and usage ❑ Entrepreneurial companies must be able to switch marketing gears quickly to attract new customer segments. Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 9 Entrepreneurs Face Unique Marketing Challenges ❑ Limited by: ❑ Financial and managerial resources ❑ Time ❑ Market information Muddling decision-making with personal biases ❑ Marketing at an early stage, to multiple audiences ❑ Marketing allows entrepreneurs to leverage scarce resources through innovative business approaches. Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 10 This Photo by Unknown Author is licensed under CC BY-SA-NC Improve Decision Making through Marketing Research ❑ Four key questions: Which product attributes are important to customers? ❑ How do product design, pricing and communication influence customer willingness to buy? ❑ Where do customers buy this kind of product? ❑ Which market trends are likely to prevail in the future? ❑ ❑ Two main types: Secondary – from already published sources ❑ More economical in terms of time & money ❑ Primary – collected directly for specific purposes ❑ Focus groups, surveys, & experiments ❑ Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 12 SREDA - https://sreda.com/ BDC https://www.bdc.ca/en/articles-tools/marketing-salesexport February 6, 2023 https://www.bdc.ca/en/about/analysis-research February 6, 2023 https://www.bdc.ca/en/about/analysis-research Community Profiles Census Profiles Understand the Customer Choice Process Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 19 Segmentation, Targeting, and Positioning Frame Strategic ‘Ends’ ❑ ❑ ❑ Detect customer segments in your market Select profitable segments to target Position your offering in the minds of your target segments Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 20 Segmentation, Targeting, and Positioning Frame Strategic ‘Ends’ ❑ ❑ ❑ Detect customer segments in your market Select profitable segments to target Position your offering in the minds of your target segments Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 21 Segmentation, Targeting, and Positioning Frame Strategic ‘Ends’ ❑ ❑ ❑ Detect customer segments in your market Select profitable segments to target Position your offering in the minds of your target segments Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 22 Marketing Mix (The 4 P’s) Product Promotion Price Place Product Strategy • Core Product – The essential good or service • Augmented Product – Attributes associated w/ Core Product Marketing Communications Strategy • Communications mix – advertising, sales promotion, public relations, personal selling, direct marketing • “Push” Marketing – Promotions, trade shows, personal selling • “Pull” Marketing – Generate end-user demand Pricing Strategy • Consider financials, such as costs, competitors pricing, perceived value • Price skimming – higher margins, limited market-share • Penetration pricing – lower margins, higher market-share Distribution Strategy • Channels are difficult to set up initially • Channel Coverage (Intensive, Selective, Exclusive) Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 23 This Photo by Unknown Author is licensed under CC BY-SA Be Attentive to Consumer Adoption Behavior Product Diffusion Curve ❑ Particularly applies to innovative products ❑ Adoption rate can vary (i.e. slower for complex products) Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 25 This Photo by Unknown Author is licensed under CC BY Pricing Strategy Distribution Strategy (PLACE) This Photo by Unknown Author is licensed under CC BY Communication Strategy (Promotion) Entrepreneurs & Guerilla Marketing ❑ ❑ ❑ ❑ Techniques are Non-traditional, Grassroots, Captivating “Word-of-mouth”, by giving people a reason to promote “Buzz”, with high-profile personalities & media “Viral”, via shared – often entertaining – content Fewer resources required means your efforts yield out-sized impact Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 29 Skills for Managing Growth ❑ Understanding and listening to the customer • Obtain information to understand customer behavior and expectations related to the 4P’s ❑ Building the brand • Awareness – ability to recall brand • Equity – effect of brand awareness on customer Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 30 Recap ❑ Have a solid, consistent strategy ❑ Adapt your tactics as conditions change (scale) ❑ Focus on the fundamentals Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2014 © Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© Marketing is a delicate balance of art and science. SCIENCE ART 31 TODAY’S PLAN Schedule Check In Chapter 11 Chapter 6 ChatGTP POLL EVERYWHERE PollEv.com/Everitt This Photo by Unknown Author is licensed under CC BY-NC-ND TODAY’S PLAN Chapter 7 Connecting the Dots Chapter 7 – Building the Founding Team This Photo by Unknown Author is licensed under CC BY-ND Power of a Team POLL Everywhere This Photo by Unknown Author is licensed under CC BY-ND PollEv.com/Everitt GEM (Global Entrepreneurship Monitor) Research…. If you want more revenue, you need more employees….. Lots of research you will find/industry are calculated as revenue /employee Restaurant “$138,593/employee” (pg. 185) **Revenue Car Dealership “$909,090/employee” (pg. 185) **Revenue THE ADVANTAGES OF A TEAM Feedback Higher social level of support Increased skill set Extended network Moral support Capacity for innovation Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017 © 6 This Photo by Unknown Author is licensed under CC BY-SA CONSIDERING YOUR ROLE Evaluate your skills Use your strengths Get feedback on your actions • What position can you best fill? • What is the best way for you to contribute to your venture’s success? • Don’t be crippled by your weaknesses… • ..but also don’t be oblivious to them either. Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017 © 9 STAFFING PLAN Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017 © 10 BUILDING A POWERFUL TEAM Create a staffing plan Find people for positions Your personal Your advisor Your extended network network network Family Professors Friends Alumni Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017 © 11 RESOURCES FOR CREATING THE TEAM Founders Employees Often little or no pay in the beginning Raise capital to pay salaries Salary from another job or support from a spouse Offer stock incentives Prepare for diminished personal cash flow Start positions as part-time until there’s enough cash to pay full-time 12 Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017 © Compensation https://www.youtube.com/watch?v=bfAzi6D5FpM 10 min TYPES OF COMPENSATION Compensation name Advantages Disadvantages Founder Shares Attracts co-founders Dilutes owner’s equity Option pool Ties employees goals to those of the company Employees may leave the company if the price falls Restricted stock Vested over time, expensed at current share price Issued regardless of company performance, exercised when price increases Stock appreciation Low cost to the company Dilutes owner’s equity rights Phantom stock Employees receive no equity Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017 © Requires cash to be exercised 14 Salary Health and Dental TYPES OF COMPENSATION Pension Plan Holiday/vacation packages Sick Days plan etc EXTERNAL TEAM MEMBERS Accountants Board of advisors Outside Your investors Virtual Team Lawyers Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017 © Board of directors 16 This Photo by Unknown Author is licensed under CC BY-NC PROBLEMS FACED BY START-UP TEAMS Family pressure Burn out Interpersonal conflicts Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017 © 18 TODAY’S PLAN Chapter 7 Connecting the Dots ORGANIZATIONAL BEHAVIOR THE IMPORTANCE OF SETTING UP THE DOTS AS AN ENTREPRENEUR SETTING UP THE DOTS Consider a job you loved….. Consider how it was to work with people you liked….. Consider what it was like to work for a company you were proud to be a part of…… SETTING UP THE DOTS What was it like to work at a job you did not like…. How did you like working with people you didn’t get along with ….. What was it like working for a company that you were not proud of… SETTING UP THE DOTS LEARN FROM EXPERIENCE This Photo by Unknown Author is licensed under CC BY-SA SETTING UP THE DOTS How is communication and responsibility determined? What does the physical set up communicate? What does your organizational structure say about you? CONNECTING THE DOTS This Photo by Unknown Author is licensed under CC BY This Photo by Unknown Author is licensed under CC BY-NC This Photo by Unknown Author is licensed under CC BYNC-ND WHERE ARE THE ORGANIZATIONAL TEAM LEADS LOCATED? This Photo by Unknown Author is licensed under CC BY-SA DIFFERENT DOTS TO CONNECT This Photo by Unknown Author is licensed under CC BY SETTING UP THE DOTS This Photo by Unknown Author is licensed under CC BY WHAT TYPE OF LEADER WILL YOU BE? Chapter 8 – The Business Planning Process You Need a Business Plan ❑ It is a small investment in time and cost when compared to the time and cost of starting a business. ❑ It forces the entrepreneur to think critically about all aspects of the business venture. ❑ It can later be used as a benchmark to monitor the progress of the business. ❑ Describes the details of how you will exploit your opportunity ❑ ❑ Creates opportunities to raise critical questions …and to research and find answers Relatively small investment in time and cost “Plans are useless, but planning is indispensable” - GEN Dwight D. Eisenhower Zacharakis, Bygrave and Zacharakis, Corbett, Bygrave Entrepreneurship, & Corbett,New Entrepreneurship, York: Wiley, 2017 New©York: Wiley, 2017© Business Planning is a Continuous Process ❑ ❑ ❑ ❑ Begins when you start thinking about a new venture Accumulate a critical mass of learning Organize summary information to share your idea and to identify gaps Focus on critical aspects of the business model Keep in mind—the business plan is a “living document.” It will continue to evolve as you progress. Zacharakis, Bygrave and Zacharakis, Corbett, Bygrave Entrepreneurship, & Corbett,New Entrepreneurship, York: Wiley, 2017 New©York: Wiley, 2017© Your Business Plan as a “Story” Key takeaways for your business are found in the process of developing a well-written story ❑ How will stakeholders interpret your plan? ❑ A tagline creates a unifying plot line that organizes your thinking ❑ Stick to the “general format” of business plans ❑ “A business plan is the persuasive, yet concise, story about where the company came from, where it’s going and how it will get there.” Shane Eten, Founder & CEO BluCarbon Zacharakis, Bygrave and Zacharakis, Corbett, Bygrave Entrepreneurship, & Corbett,New Entrepreneurship, York: Wiley, 2017 New©York: Wiley, 2017© Business Plan Format – Keep it Simple! I. II. III. IV. V. VI. VII. VIII. IX. X. XI. XII. XIII. Cover Title Page Executive Summary Industry, Customer, and Competitor Analysis Company and Product Description Marketing Plan Operations Plan Development Plan Team Critical Risks Offering Financial Plan Appendices (from Figure 8.1) Zacharakis, Bygrave and Zacharakis, Corbett, Bygrave Entrepreneurship, & Corbett,New Entrepreneurship, York: Wiley, 2017 New©York: Wiley, 2017© A Business Plan is Judged by Its Cover - Create a Good One! The Cover ❑ An “Eye-catcher” ❑ Control Distribution ❑ Disclaimer ❑ Simple…but Important Details Clearly Identify ❑ Company Name ❑ Tagline ❑ Contact Information ❑ Date of Publication Imagine the frustration of an excited potential investor who can’t find your contact information – that plan will be rejected. Zacharakis, Bygrave and Zacharakis, Corbett, Bygrave Entrepreneurship, & Corbett,New Entrepreneurship, York: Wiley, 2017 New©York: Wiley, 2017© Draft an Executive Summary ❑ ❑ ❑ ❑ ❑ Most Important (and Exciting) Section Write it after you have researched your venture Capture the reader’s attention – the HOOK Highlight the potential of the Opportunity Provide compelling information on: ✓ Description of the Opportunity ✓ Competitive Advantage ✓ Business Concept ✓ Business Model & Economics ✓ Industry Overview ✓ Team & Offering ✓ Target Market ✓ Financial Snapshot Zacharakis, Bygrave and Zacharakis, Corbett, Bygrave Entrepreneurship, & Corbett,New Entrepreneurship, York: Wiley, 2017 New©York: Wiley, 2017© Your plan should cover 9 main areas Industry/ Competitor Analysis Team Company/ Product Description Critical Risks Executive Summary Marketing Plan Financial Plan Team Development Plan Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2017 © Operations Appendix Three Essential Types of Business Plans ❑ ❑ ❑ Operational Plan ❑ Internal use ❑ Often 80+ pages Formal Plan ❑ External use ❑ Roughly 25 to 40 pages Expanded Executive Summary ❑ for enticing interested stakeholders ❑ In lieu of a full business plan ❑ Typically 7 to 10 pages Zacharakis, Bygrave and Zacharakis, Corbett, Bygrave Entrepreneurship, & Corbett,New Entrepreneurship, York: Wiley, 2017 New©York: Wiley, 2017© Presentations should be direct • Should be able to communicate your business opportunity in 10-12 slides 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Cover page w/ product picture Opportunity description Illustration of how your product solves a problem Details as needed Competition overview Entry and growth strategy Overview of business model Team description Current status with time line Summary including your monetary ask Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2017 © 10 Chapter 9 – Building your Pro Forma This Photo by Unknown Author is licensed under CC BY-ND Avoid these mistakes COMMON ENTREPRENEURIAL MISTAKES 1. Not understanding the revenue drivers 2. Underestimating costs 3. Underestimating time to generate revenues 4. Lack of comparables 5. Top-down versus bottom-up forecasting 6. Underestimating time to secure financing Reduced survival chance Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 3 Financial Statements Income Statement – how the company did over a period Cost of products sold Selling, marketing, & admin costs Depreciation Interests on debts Taxes = Net Income Statement of Cash Flows – where is the cash Balance Sheet = A = L + E BUILDING PROCESS Build-up method Comparable method Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© Integrated financial statements Final Steps 5 FINANCIAL CONSTRUCTION CHECKLIST Build-up method Comparable method Integrated financial statements Final Steps Build-Up Method 1. Identify all your sources of revenues 2. Determine your revenues for a “typical day” 3. Understand your revenue drivers a. How many customers you will serve b. How much product they will buy c. How much they will pay for each product d. How often they will buy 4. Validate driver assumptions a. Primary research (talk to customers, attend trade shows, etc.) b. Secondary research (industry reports, company reports, etc.) 5. Recombine. Multiply the typical day by the number of days in a year 6. Determine Cost of Goods Sold (COGS) for a typical day 7. Recombine. Multiply COGS by number of days in a year 8. Determine operating expenses by most appropriate time frame 9. Refine operating costs 10. Create preliminary income statement Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 6 BUILD-UP METHOD Revenue Projections Revenue Worksheet COGS COGS Worksheet Operating Expenses Operating Expense Worksheet Preliminary Income Statement Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 7 UNDERSTANDING YOUR REVENUE DRIVERS Up-selling Revenue drivers Sales associates Advertising Customer visits Store location Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 8 REVENUE WORKSHEET Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 9 COST OF GOODS WORKSHEET Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 10 OPERATING EXPENSES WORKSHEET Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 11 HEADCOUNT TABLE Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 12 INCOME STATEMENT Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 13 FINANCIAL CONSTRUCTION CHECKLIST Build-up method Comparable method Integrated financial statements Final Steps Comparable Method 11. Compare revenue projections to industry metrics 12. Run scenario analysis 13. Compare common-sized cost percentages to industry averages Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 14 COMPARABLE METHOD Choose industry metrics Benchmark similar companies in industry Compare your company to industry average and other companies Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 15 COMPARABLE ANALYSIS Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 16 FINANCIAL CONSTRUCTION CHECKLIST Build-up method Comparable method Integrated financial statements Final Steps Building Integrated Financial Statements 14. Derive monthly income statements for first two years, yearly statements for year 3–5 15. Create balance sheet (yearly for year 1–5) 16. Create cash-flow statement (monthly for years 1 and 2, yearly for years 3–5) Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 17 INTEGRATED FINANCIAL STATEMENTS INTEGRATED FINANCIAL STATEMENTS Income Statement Balance Sheet Statement of Cash Flows Monthly forecasts for years 1 and 2 Consider Accounts Receivable Adjust monthly forecasts according to seasonality Show outflow and depreciate PP&E Annual forecasts for years 3-5 Consider Accounts Payable Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 18 SEASONALITY PROJECTIONS 19 This Photo by Unknown Author is licensed under CC BY-NC-ND INTEGRATED FINANCIAL STATEMENTS Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 20 FINANCIAL CONSTRUCTION CHECKLIST Build-up method Comparable method Integrated financial statements Final Steps Final Steps 17. Write a two- to three-page description of financial statements Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 21 This Photo by Unknown Author is licensed under CC BY-SA CASH-FLOW STATEMENT Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 23 PUTTING IT ALL TOGETHER Explanation of spreadsheets (2-3 pages) Details of income statement Revenue drivers and seasonality Details of cash flows Major cash infusions, Details of balance sheet Major assets and liabilities Continual iterations strengthen your financials and should give you further confidence in the viability of your business model. Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 24 POLL Everywhere This Photo by Unknown Author is licensed under CC BY-ND PollEv.com/Everitt Chapter 10 – Raising Money for Starting & Growing a Business Progression of Raising Money Turning to friends & family Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2017 © Approaching business angels Raising VC funding Being acquired Going public Financing Sources Start-up capital is included in the “idea development phase” and “start-up phase” Only some kinds of financing are available at each phase of business development Starting Capital Bootstrap Financing Sources for starting capital: Personal money Love money Grants Start-up prize money Crowd funding campaigns Bootstrap Financing Using your own money, resources, and time Minimizes risk Accountable only to yourself Once you have something to show then more investors are interested, therefor increasing your negotiating power RELATIONSHIP OF INFORMAL INVESTOR TO INVESTEE Relationship: Investor-Investee Percent Total Mean Amount Invested US$ Median Payback Time Median X Return Close family 49.4% 23,190 2 years 1x Other relative 9.4% 12,345 2 years 1x Work colleague 7.9% 39,032 2 years 1x Friend, neighbor 26.4% 15,548 2 years 1x Stranger 6.9% 67,672 2-5 years 1.5 x 100.0% 24,202 2 years 1x Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2017 © 7 External Financing Vendor Financing ReducedRate Services Reduced Rent External Financing Federal Programs Customer Financing Leased Equipment Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2017 © Financing Sources https://www.catfinancial.com/en_US/videos/w hy-cat-financial.html 2 min • Equipment Leasing Companies Source: http://finance.cat.com/cda/files/2430039/7/ComparisonChart.pdf Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2017 © Crowd Funding Campaigns Crowdfunding can help you collect donations, offer rewards and take pre-orders http://ncfacanada.org/canadian-crowdfunding-directory/ Others: Kickstarter, Indiegogo, (5 – 9% fee) NCFA, 2019 https://ncfacanada.org/crowdfunding/ Crowd Funding - Kickstarter https://www.kickstarter.com/help/fees?ref=faq-basics_fees Crowd Funding – Kickstarter https://help.kickstarter.com/hc/en-us/articles/115005047953-What-dobackers-get-in-return- Targeted Funding Focused funds with certain criteria There are lots of targeted funds – this is just to show you a few Industry – Research Funding Academic Tri-council Research Funding Collaborations between academic and industry - NSERC (Natural Sciences, Engineering Research Council - SSHRC (Social Sciences and Humanities Research Council) - CIHR (Canadian Institutes of Health Research) Mitacs A expertise and financial partnership between, students, researchers and industry Financial support for R&D; paid in part by MITAC (federal program) and industry Researchers paid by University (funded by Mitacs): Mitacs assistance throughout process Identifying Recruiting Preparing partners talent application National Research Council – Industrial Research Advisory Program (IRAP) • Support the needs of small- and medium-sized firms engaged in innovative technology-driven activities • Assist firms to develop, adopt or adapt technologies and incorporate them into competitive products and services to be commercialized in the global marketplace • Advisory Services and Financial Support https://www.nrc-cnrc.gc.ca/eng/irap/ SRED = Scientific Research and Experimental Development Program • Largest single source of federal government support for innovation funding in Canada • Eligible costs can be returned to you in cash or tax credits Can include: • Proto-typing • Product Development or Improvement • Scientific / Medical Research • Systems Integration / Automation • Manufacturing Process Advancement • Materials Development • Incremental Process / Technological Improvement https://www.canada.ca/en/revenueagency/services/scientific-research-experimentaldevelopment-tax-incentive-program.html AgWest Bio Inc. www.agwest.sk.ca Can provide early stage capital for early-stage or expanding companies $20,000 - $300,000 and is targeted to initiatives where a clear pathway to commercialization can be demonstrated. Repayable upon successful entry into the market; RBC prime plus 2% Agriculture based value add companies General Business Funding Focused funds with certain criteria There are lots of general funds – this is just to show you a few Other Funding Options Futurpreneur Canada http://www.futurpreneur.ca/en/get-started/financing-and-mentoring/ 18 – 34 years of age - $20,000 low interest loan and up to $40,000 through BDC partnership 35 – 39 years of age – up to $45,000, BDC terms and conditions, but work through Futurpreneur. Government of Saskatchewan Canada-Saskatchewan Job Grant https://www.saskatchewan.ca/business/hire-train-and-manage-employees/apply-for-the-canadasaskatchewan-job-grant Up to $10,000 per employee to help cover the cost of training Government of Canada Apprenticeship Program ➢ Up to $10,000 for hiring a 1st year apprentice https://www.apprenticesupport.ca ➢ Other Options Women Entrepreneurs Homepage - https://wesk.ca/ Lending - https://wesk.ca/programs/financing/ Provides loans up to $150,000 to new or existing qualified businesses owned and operated by women. BDC (Business Development Bank of Canada) Start-up financing and services Flexible repayment Consulting services available Start up financing up to $250,000 http://www.investopedia.com/terms/d/death-valley-curve.asp http://www.slideshare.net/anicalena/150-business-diagrams FFF = Family, Friends, Fools http://www.slideshare.net/anicalena/150-business-diagrams FFF = Family, Friends, Fools Phases Idea development Start-up Early operations Growth Exit Equity Giving up some control of the company for $ Giving up some of the profits (dividends) Can be more difficult to obtain Advantages are that you may acquire strategic partnerships & increased core competencies Are also sharing the risk of the company Does not impact cashflows of the business An Investors Considerations = Due Diligence Executive Team Potential market Market Description Does it open new markets Scalability Or eat into current markets Product/Service (unique IP) How far along are they Business Plan – Growth Strategy Benefits of new vs present options Valuation Margins of the technology Exit Strategy Who ultimately benefits Follow up opportunities Equity Financing Investor receives a share of the company in anticipation of future successes Angel Investment → private accredited investors May want a convertible bond – starts as a loan which converts into equity Finding Business Angels 1.FORMAL ANGEL GROUPS Pros: Easy to find Cons: May charge for the privilege to present or submit a business plan; Limited number (several thousand) Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2017 © 2. INDIVIDUAL ANGELS Pros: Several hundred thousand available Cons: Hard to find and approach; must identify prospects and present Types of Business Angels Entrepreneurial Angels May be valuable advisors Corporate Angels May take over or ruin company Professional Angels Silent partners Enthusiast Angels Passive investors Micromanagement Angels Intervene in the business Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2017 © Venture Capital Venture Capital → pool of money from accredited or nonaccredited investors Ex. Sask Works, Golden Opportunities https://www.saskwork s.ca/ https://goldenopportu nities.ca/ (2 min) How to Assess a VC Added Value Value added Board of Directors Patience Deep Deep pockets Pockets Availability Board of directors Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2017 © Accessibility Patience Top 6 Investment Factors For VCs VCs may help you hire a Team Competently written business plan 7X return in 5 years Management Team Business Plan Target Market Financial Return Product/ Service Competitive Positioning Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2017 © Fragmented, accessible, and growing Better and protected Open distribution channels INFORMAL INVESTMENT VS. VENTURE CAPITAL Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2017 © 34 CLASSIC VENTURE CAPITAL INVESTMENT Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, 2017 © 35 Debt The cost for using the money you need now, is the interest, in addition to the return of the money. Must have collateral to secure a loan → sometimes have to make a personal guarantee Pay back in a specific period (risky, as it doesn’t allow the company to prioritize expenditures) Advantages is that there is no dilution of ownership Could be shareholder loan – the bank will lend you money but not your company. As long as you pay the interest you have access to money. Debt Made on four Cs: cash, character (terms), collateral, and capacity (to pay it back) Term Loans Short term and medium term Operating Loans Finance accounts receivable and inventory Trade Credit Supplies invoices not due until 30, 60, or 90 days Factoring When a business sells is accounts receivables https://www.youtube.com/watch?v=iU78jtZtm0E 6:20 min Mezzanine Lenders https://www.youtube.com/watch?v=vdtBMF5lcLw 1:30min Warrants & options Higher interest rates because the risk is higher Financing Sources – Exit / Harvest Phase Initial Public Offerings (IPOs) Acquisition, Leveraged Buy-Outs (LBO), Management Buy-Outs (MBO) IPOs = Initial Public Offerings Seeking $ to expand Hard to value Sale from the initial offering goes to the company Owners of the shares = dividends & residual dissolution proceeds Acquisition, Leveraged Buy-Outs (LBOs), Management Buy-Outs (MBOs) When borrowed money is used to buy out the company Ways of Evaluating a Business ❑Earning-capitalization valuation ❑Present value of future cash flows ❑Market-comparable valuation ❑Asset-based valuation Valuation is not an exact science. Each of the above methods may get to vastly different monetary values of a company. Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2017 © Chapter 11 – DEBT AND OTHER FORMS OF FINANCING Financing is a continuing activity ❑Factors within, and outside of, your control impact your cash needs & can change suddenly ❑Cash needs must be frequently forecasted with a margin of error ➢ Plan for the most likely case ➢ Be prepared for the worst case (maintain access to a reserve) ❑Remember the 3 “Rules of Cash” ➢ More cash is better than less cash ➢ Cash now is better than cash later ➢ Never run out of cash (#1 killer of new ventures!) Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2017 © 2 Align your sources & uses of funds ❑Uses of funds ➢ Start-up costs ➢ Working capital ➢ Growth ❑Sources of funds (cash flow) ➢ External • Require external analysts or investors to independently appraise the worthiness of capital investments before releasing funds ➢ Internal • Funds you control directly & absolutely ▪ Forecast uses of funds further out than the time required to secure sources of funds Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2017 © 3 Mature firms enjoy greater access to funds FIRM MATURITY INTERNAL SOURCES OF FUNDS EXTERNAL SOURCES OF FUNDS Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2017 © Start with internal funds sources ❑Home equity lines of credit ➢ Interest rates are comparatively low ➢ Better for mid to longer term debt ❑Credit cards ➢ Higher interest rates ➢ Miles/points may be available ➢ Better for short term debt to minimize cost of capital ❑Use personal funds to “de-risk” your venture ➢ Confirm/deny market demand ➢ Confirm/deny your value proposition ❑Create conditions needed to access other fund types Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2017 © Optimize your cash collection cycle (CCC) ❑Ideal - a negative cycle ➢ Customer pays you before you pay suppliers ➢ Highest liquidity ❑Next best – Customers pay cash, you pay credit ➢ Influenced by industry norms ❑Optimize your CCC ➢ Extend payables ➢ Shorten receivables ➢ Minimize inventory costs Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2017 © Obtain working capital from receivables by adjusting… ❑ the pattern of your sales ✓ Forecast sales to plan working capital ❑ the ratio of cash vs. credit ✓ Credit vs. credit cards vs. cash ❑ your terms for credit sales ✓ ✓ ✓ A competitive factor within industries Consider demand elasticity Length of payment & discounts ❑ your way of enforcing your credit terms ✓ Cutting off vs. cash-only vs. collection agencies vs. legal recourse Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2017 © Sales Pattern This Photo by Unknown Author is licensed under CC BY-NC-ND Collections This Photo by Unknown Author is licensed under CC BY-SA-NC Inventory This Photo by Unknown Author is licensed under CC BY-SA Many factors to consider in acquiring short term bank loans ❑Maturity of loans ❑Interest rates ❑Collateral ❑Loan applications ❑Restrictive covenants ❑General provisions ❑Routine provisions ❑Specific provisions Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2017 © Plan cash flows & profits ❑Profitability vs. Solvency ➢ An unprofitable venture can recover…measure of health ➢ An Insolvent venture ceases to exist because it cannot pay its’ suppliers (insufficient working capital)…vital sign ❑Profits doesn’t equal cash flow ➢ Some cash transactions do not impact profits ➢ Non-cash transaction do not impact cash flow ❑ Free cash flow (FCF); matters to bank loan officers = Cash from operations (CFO) – capital expenditures (CAPEX) Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2017 © 14 Chapter 14 – Types of Entrepreneurship – including Social Entrepreneurship Canada = Entrepreneurial Hotbed 40 percent of Canadians think being your own boss is the most rewarding career decision. 80 percent of all entrepreneurs say that starting a business was their best career decision. Copyright © 2017 by Nelson Education Ltd. Ron Knowles & Chris Castillo (2017) Small Business (7th1-2edition) Nelson Education Canada = Entrepreneurial Hotbed Canada has twice the percentage of selfemployed people as the United States! 60% of self employed people have a postsecondary education. (CIBC world Markets) About 1/3 are serial entrepreneurs: Copyright © 2017 by Nelson Education Ltd. They own or have owned more than one business. (CIBC World Markets) 1-3 Ron Knowles & Chris Castillo (2017) Small Business (7th edition) Nelson Education, pg 6 Some Sections of Entrepreneurship Intrapreneurship Social Entrepreneurship First Nations, Indigenous, Metis Entrepreneurship Community-Based Enterprises & Community-Based Entrepreneurship Family Businesses Lots of Resources… Government of Saskatchewan https://www.saskatchewan.ca/business/entrepreneurs-start-or-exit-abusiness/start-a-business/resources-for-starting-a-business Intrapreneurship – within a company This Photo by Unknown Author is licensed under CC BY-NC Intrapreneurship These people tend to initiate/make change within a large company Intrapreneurs stimulate, empower, and reward employees to be entrepreneurial, and find opportunities take risks brainstorm for new ideas set goals take ownership Copyright © 2017 by Nelson Education Ltd. 1-7 First Nations, Indigenous, Metis Entrepreneurship Indigenous Entrepreneurs Preserving & promoting culture & values Interwoven with community Many stakeholders Government of Canada https://library.usask.ca/scripts/remote?URL=https://www.canada.ca/en/services/indigenous -peoples/business-and-economic-development-indigenous-peoples.html BDC https://library.usask.ca/scripts/remote?URL=https://www.bdc.ca/en/i-am/indigenousentrepreneur/financing-indigenous-entrepreneur-loan-form Government of Canada https://library.usask.ca/scripts/remote?URL=https://www.cannor.gc.ca/eng/1396123434848 /1396123576050 Government of Saskatchewan https://library.usask.ca/scripts/remote?URL=https://www.saskatchewan.ca/business/firstnations-metis-and-northern-community-businesses Community-Based Enterprises & CommunityBased Entrepreneurship This Photo by Unknown Author is licensed under CC BY-NC-ND Three Sectors in Society Generate profit based on market demands Redistributes $ for public goods & services COMMONS Voluntary, Non-Profit, Plural Sector Community-owned → Saskatchewan Roughriders Esks, Bombers and ‘Riders prove public model works By Tony Seskus, Calgary Herald https://www.cfl.ca/2007/09/01/community_ownership_a_port_in_cfl_s_storms/ For-Profit vs Community-based organizations Seek markets with profits Typically focused on social return Influenced by suppliers Influenced by customers/users Influenced by investors motives (supply-side stakeholders) Influenced by demand-side stakeholders Do not distribute profits equity holders Eligible for tax exemptions & private donations Transparency is very important Family Businesses Huge percentage of economic activity in US & Canada Different influences Different challenges Succession → very difficult to manage This Photo by Unknown Author is licensed under CC BY-SA Social Entrepreneurship – address social issues →includes profit & non profit → change agents → common good → characteristics & goals ▪ Classical entrepreneurs seek financial gain ▪ Social entrepreneurs start with a social mission Social Entrepreneurship Zone Swanson & Zhang (2010, 2011,2012) Differences in Concepts Social Entrepreneurship versus corporate social responsibility Starbucks https://www.starbucks.ca/responsibility Ted Talk (18min) – in class 11min https://www.youtube.com/watch?v=N8LVa9pb-n8 Rise of Social Entrepreneurship “the drivers of entrepreneurial opportunities have shifted, creating new assumptions and conditions for venture creation” pg. 444 Requires excellent communication skills, working with multiple stakeholders, taking on massive challenges, and constantly problem solving and innovating Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2019 Social Entrepreneurship is defined by processes & people DEFINITION • Process-based definitions focus on actions: ✓ Social value creation ✓ Opportunity recognition ✓ Opportunity exploitation ✓ Resource mobilization • Entrepreneur-centric definitions focus on people who: ✓ Find innovative solutions to society’s problems ✓ Are society’s change agents ✓ Exhibit a heightened sense of accountability Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2017 © There are 4 main types of social ventures Economic Economic Social Traditional Social Purpose Hybrid Social Impact Mission Social Consequence Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2017 © Enterprising Non-profits TYPES Traditional ventures seek economic outcomes Traditional • Mission and outcomes are economic • Social outcomes are byproducts • As noted, however, the absence of negative social outcomes is rapidly becoming a ‘hygiene factor’ among consumers. Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2017 © Social Consequence balance profits & mission Social Purpose • Economic mission which is often subservient to social goals. • Society first, profits always Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2017 © Social purpose start with a social mission • Seeks a profitable means of addressing a social issue • Profits are a requirement to achieving social outcomes • Profits first, society always Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2017 © Social Consequence Enterprising nonprofits re-invest income into the cause • • • • Enterprising Non-profits Driven by social mission Retained earnings become working capital, not profits. Doesn’t rely on donations Society first, cash flow always Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2017 © Hybrids pursue social and economic goals equally Hybrid • • • • • The internet/media increases customer awareness of global operations Customers are demanding companies consider social issues Supply chains are under particularly scrutiny Hybrid venture perform a careful balancing act Becoming certified as a B Corporation is one way to signal commitment to the market. • https://www.bdc.ca/en/about/b-corp/pages/default.aspx • https://bcorporation.net/ Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2017 © Certified B Corps Certifying as a B Corporation goes beyond product- or service-level certification. B Corp Certification is the only certification that measures a company’s entire social and environmental performance. The B Impact Assessment evaluates how your company’s operations and business model impact your workers, community, environment, and customers. From your supply chain and input materials to your charitable giving and employee benefits, B Corp Certification proves your business is meeting the highest standards of verified performance. Positive impact is supported by transparency and accountability requirements. B Corp Certification doesn’t just prove where your company excels now—it commits you to consider stakeholder impact for the long term by building it into your company’s legal structure. BLAB 2020 https://bcorporation.net/certification Measuring impact is critical MEASURES • Social problems are complex • Reducing consequences may not solve the problem • Solutions are multi-pronged • Measures must relate objectives and tied to activities • Consider defining objectives in terms of a Triple Bottom Line (TBL) ✓ Economic ✓ Environmental ✓ Social Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2017 © 27 InnerCity Weightlifting https://www.youtube.com/watch?v=FEtI6QCmS-4 You? “Entrepreneurship is about doing different things or doing things differently” pg. 455 Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley, 2019
