Chapter 1

What is an Entrepreneur? One who creates a new business in the face of risk and uncertainty for the purpose of achieving profit and growth by identifying opportunities and assembling the necessary resources to capitalize on them. An entrepreneur is someone who is willing to work 16 hours a day to keep from working 8 hours a day for someone else! Characteristics of Entrepreneurs Benefits of Small Business Ownership Desire to take initiative Create your own destiny Preference for moderate risk Make a difference Confidence in their ability to Reach your full potential succeed Reap impressive profits Self-reliance Contribute to society and to be Perseverance recognized for your efforts Desire for immediate feedback Do what you enjoy and to have fun at it High level of energy Drawbacks of Small Business Ownership Competitiveness Uncertainty of income Future orientation Risk of losing your entire Serial entrepreneurs investment Skilled at organizing Long hours and hard work Value achievement over money Lower quality of life until the Diversity! One characteristic of business gets established entrepreneurs stands out High levels of stress Anyone regardless of age, race, gender, color, national origin, Complete responsibility or any other characteristic Discouragement can become an entrepreneur (although not everyone should). 11 Mistakes of Entrepreneurship 1. Management incompetence 3. Forcing a flawed idea 5. Poor cash management 7. Weak marketing effort 9. Poor location 2. 4. Lack of experience Undercapitalization

6. Failure to develop a strategic plan

8.

Uncontrolled Lack of inventory

11. Inability to make the entrepreneurial transition

growth 10. control

Chapter 2
9 step of Strategic Management Process

Step 1: Develop a vision and translate it into a mission statement. Vision an expression of what an entrepreneur stands for and believes in. Mission - addresses question: What business are we in? Step 2: Assess strengths and weaknesses. Step 3: Scan environment for opportunities and threats. Step 4: Identify key success factors. - Relationships between a controllable variable and a critical factor that influence a companys ability to compete in the market. Step 5: Analyze competition. (Techniques do not require unethical behavior)

Step 6: Create goals & objectives. Objectives. S.M.A.R.T.

1. 2. 3. 4. 5.

Specific Measurable Assignable Realistic (yet challenging) Timely

Step 7: Formulate strategies. Three Strategic Options 1. Cost Leadership 2. Differentiation 3. Focus Step 8: Translate plans into actions. Create projects by defining: 1. Purpose 2. Scope 3. Contribution 4. Resource requirements 5. Timing Step 9: Establish accurate controls.

Four Perspectives: Customer: How do customers see us? Internal Business: At what must we excel? Innovation and Learning: Can we continue to improve and create value? Financial: How do we look to shareholders?

Chapter 6
Key Elements 1. 3. 5. of a Business Plan Executive summary Company history Business strategy 2. Mission statement 4. Business and industry profile 6. Description of products/services 8. Competitor analysis 10. Plan of operation 12. Request for funds 14. Owners and managers rsums 16. Financial forecasts

7. Marketing strategy 9. Owners and managers rsums 11. Financial forecasts 13. Competitor analysis

15. Plan of operation 17. Request for funds Three Tests to be success The Reality Test - proving that : A market really does exist for your product or service. You can actually build or provide it for the cost estimates in the plan. The Competitive Test - evaluates: A companys position relative to its customers. Managements ability to create a company that will gain an edge over its rivals. The Value Test proving that: A venture offers investors or lenders an attractive rate of return or a high probability of repayment.

Chapter 7
Market research is the vehicle for gathering the information that serves as the foundation for the marketing plan. How to Conduct Market Research: Define the objective. Collect the data. Analyze and interpret the data. Put the information to work. The Quality DMAIC Process Reliability (average time between breakdowns) Durability (how long an item lasts) Ease of use Known or trusted brand name Low price Guerrilla Marketing Principles Focus on the customer Devotion to quality Attention to convenience Concentration on innovation Dedication to service and customer satisfaction Emphasis on speed

Stages in the Product Life Cycle Introductory stage Growth and acceptance stage Maturity and competition stage Market saturation stage Product decline stage

Chapter 8
Basic Financial Reports

Balance Sheet Income Statement

Assets = Liabilities + Owner's Equity Net Income = Sales Revenue - Expenses

Statement of Cash Flows - shows the change in the firm's working capital over a period of time by listing the sources of funds and the uses of these funds. Twelve Key Ratios ability to meet its maturing obligations as they come due. ability to pay current liabilities CA/CL liquid assets cover its current liabilities CA-Inv/ CL financing provided by the firm's owners against that supplied by its creditors %of total assets financed by creditors rather than owners TD/TA Compares what the business "owes" to what it is worth TD/Net worth Measures the firm's ability to make the interest payments on EBIT/Int. Exp
its debt

Liquidity Ratios 1. Current Ratio 2. Quick Ratio Leverage Ratios 3. Debt Ratio 4. Debt to Net Worth 5. Times Int.Earned Operating Ratios 6. Average Inv.Turn.Ratio 7. Avg. Collection Period 8. Average Payable Period 9. Net Sales to TA

how effectively it is putting its resources to work period the firm's inv. sold out CGS/ Avg. Inv
(Avg. Inv. = (BBInv + EBInv)/2) period required to collect accounts receivable (AR.Turn =Cr. Sales/AR ) period required to pay accounts payable (AP.Turn = Purchases /AP) ability to generate sales given its asset base

365 /AR.Turn 365 / AP.Turn Net Sales/TA

10. Net Sales to NWC Profitability Ratios 11. Net Profit on Sales Ratio 12. Net Profit to Equity Ratio

the company generates sales for working capital (NWC = CA-CL)

Net Sales/ NWC NI/Sales NI/OE

how efficiently the firm is operating

profit per dollar of sales revenue owner's rate of return on the investment in the business

Chapter 9
Cash management forecasting, collecting, disbursing, investing, and planning for the cash a company needs to operate smoothly. Why we need A business earn a profit and be forced to close because it runs out of cash! The "Big Three" of Cash Management 1. Accounts Receivable Preparing a Cash Budget 2. Accounts Payable 3. Inventory Determine a Minimum Cash Balance Five Cash Management Roles of an Entrepreneur Forecast Sales 2. Cash Finder 3. Cash Planner Forecast Cash Receipts 4. Cash Distributor 5. Cash Collector Forecast Cash Disbursements 6. Cash Conserver Estimate End-of-Month Cash Balance Avoiding the Cash Crunch Consider bartering, exchanging goods and services for other goods and Benefits of Cash Management services Increase amount and speed of cash Trim overhead costs. For example: flowing in 1. Lease rather than Reduce the amount and speed of cash buy flowing out 2. Avoid nonessential Develop a sound borrowing and cash outlays repayment program 3. Negotiate fixed loan Impress lenders and investors payments to coincide with your companys cash flow Reduce borrowing costs by borrowing only 4. Look for simple ways when necessary to cut costs Take advantage of money-saving 5. Hire part-time opportunities such as cash discounts employees and freelancers Make the most efficient use of available 6. Develop an internal cash security system Finance seasonal business needs 7. Develop an internal Provide funds for expansion security system Plan for investing surplus cash 8. Devise a method for fighting check fraud 9. Change shipping terms 10. Switch to zero-based budgeting Keep your business plan current Invest surplus cash

Chapter 10
How to set Price

1. Pricing for Retailers: Markup

2. Pricing for Manufacturers: Breakeven Selling Price

3. Pricing for Service Firms: Price per Hour

Chapter 11
Unique Selling Proposition USP - A key customer benefit of a product or service that answers the critical question that every customer asks: "What's in it for me?" A Six-Sentence Advertising Strategy purpose Advertising Media Options Word-of-mouth Newspapers Radio Television Magazines Specialty advertising Point-of-purchase ads

What you offer customers key benefits support your USP? Target Response from your target audience? Image do you want to convey in your ads?

Elements of an Integrated Marketing Communications Plan

Advertising Publicity Personal selling

Successful Personal Selling Requires a Selling System Create an atmosphere of trust and respect. Ask the prospect questions designed to reveal the criteria necessary to make the sale. Demonstrate, explain, and show the benefits of your product or service. Validate. Prove the claims about your product or service. Listen for objections and try to overcome them. Close the sale. Stop talking and ask for the order.

Chapter 12

Why Go Global? Offset sales declines in the domestic market Increase sales and profits Extend products life cycles Lower manufacturing costs Improve competitive position Raise quality levels Become more customer-oriented Barriers To International Trade

Strategies For "Going Global" Launching a World Wide Web site Relying on trade intermediaries Joint ventures Foreign licensing International franchising Countertrading and bartering Exporting Establishing international locations

1. 2. 3. 4. 5. 6. 7.

Tariffs - Taxes a government imposes on goods and services Quotas - Limits on the amount of a product imported into a Embargoes - Total bans on imports of certain products. Dumping - Selling large quantities of a product in a foreign Political barriers - rules, regulations and risks. Business barriers business practices and laws. Cultural barriers - Differing languages, philosophies, traditions,

imported into that country. country.

country below cost to gain market share.

and accepted business practices.

Chapter 13
Benefits of Sellingon the Web Opportunity to increase revenues Ability to expand into global markets Ability to remain open 24 hours a day, seven days a week Capacity to use the Webs interactive nature to enhance customer service Power to educate and inform Ability to lower the cost of doing business Capacity to improve efficiency in the purchasing process Ability to spot new business opportunities and capitalize on them Power to track sales results Strategies for E-Success Focus on a market niche Develop a community Attract visitors by giving away freebies Make creative use of e-mail, but avoid becoming a spammer Make sure your Web site says credibility Consider forming strategic alliances Make the most of the Webs global reach Promote your site online and offline Develop an effective search marketing strategy o Jupiter Media Metrix study: 77% of Internet shoppers go straight to a search engine to find the products and services they want. o Bad news: Business owners invest less than 1% of their marketing budgets on search engine marketing.

Good E-Page Short Memorable Indicative of a companys business Easy to spell Be easy to find. Give customers what they want. Establish hyperlinks with other businesses, preferably those selling complementary products. Include an e-mail option, an address, and a telephone number in your site. Give shoppers the ability to track their orders online. Offer Web shoppers a special all their own. Follow a simple design.

Chapter 14
Sources of Equity Financing Personal savings Friends and family members Angels Partners Corporations Venture capital companies Public stock sale

Chapter 15
Sources of Debt Capital Stock brokerage houses Insurance companies Credit unions Bonds Private placements Small Business Investment Companies (SBICs)

Chapter 16
Selecting the State Factors to consider: Proximity to markets Proximity to needed raw materials Labor supply needs Wage rates Business climate Tax rates Internet access

Chapter 17
The Purchasing Plan 1. Quality a. Total Quality Management b. Demings 14 Points 2. Quantity a. Economic Order Quantity Analysis (EOQ) b. Economic Order Quantity with Usage 3. Price a. Purchase Discounts 4. Time

a. Reorder Point Analysis 5. Vendor a. Sources of Supply b. Vendor Rating Scale Implementing TQM 1. Use benchmarking to discover the best practices that will produce quality results. 2. Shift from a management-driven culture to a participative, team-based one. 3. Modify the reward system to encourage teamwork and innovation. 4. Train workers constantly to give them the tools they need to produce quality and to upgrade the companys knowledge base. 6. Train employees to measure quality with the tools of statistical process control (SPC). 7. Use Paretos Law to focus TQM efforts. 8. Share information with everyone in the organization. 9. Focus quality improvements on astonishing the customer. 10. Dont rely on inspection to produce quality products and services. 11. Avoid using TQM to place blame on those who make mistakes. 12. Strive for continuous improvement in processes as well as in products and services.

Chapter 18
ABC Method The ABC technique focuses inventory control efforts on the small percentage of items that account for the majority of the firms sales. Categorizes inventory items into three classes A, B, and C with the goal of establishing different levels of control over each class. Benefits of JIT 1. Lower investment in inventory. 2. Reduced inventory carrying and handling costs. 3. Reduced costs resulting from obsolete inventory. 4. Smaller investment in inventory storage space. 5. Reduced manufacturing costs as a result of improved coordination among departments. Reasons For Employee Theft 1. The trusted employee 2. Disgruntled employees 3. Organizational atmosphere 4. Physical breakdowns 5. Improper cash control

Chapter 19
Effective Leaders 1. Create a set of values and beliefs for employees and passionately pursue them. 2. Respect and support their employees. 3. Set the example for their employees. 4. Focus employees efforts on challenging goals and keep them driving toward those goals. 5. Provide the resources employees need to achieve their goals. 6. Communicate with their employees. 7. Value the diversity of their workers. 8. Celebrate their workers successes. 9. Encourage risk-taking among their workers. 10. Understand that leadership is multidimensional.

11. Value new ideas from employees. 12. Understand that success really is a team effort. 13. Encourage creativity among their workers. 14. Maintain a sense of humor. 15. Behave with integrity at all times. 16. Keep their eyes on the horizon. Four Vital Tasks of a Leader 1. Hire the right employees and constantly improve their skills 2. Build an organizational culture and structure that enable the company to reach its potential 3. Communicate the vision and the values of the company and create an environment of trust. 4. Motivate workers to higher levels of performance

Chapter 20
Skills a Successor Needs 1. Financial abilities 2. Technical knowledge 3. Negotiating ability 4. Leadership qualities 5. Communication skills 6. Juggling skills 7. Integrity 8. Commitment to the business

Chapter 21
Three Levels of Ethical Standards 1. The law 2. Organizational policies and procedures 3. The moral stance employees take when faced with decisions not governed by formal rules

Chapter 22
Government Regulation Trade Practices Sherman Antitrust Act Clayton Act Federal Trade Commission Act Robinson-Patman Act

Consumer Protection Consumer Credit Protection Act (Truth-in-Lending Act) Fair Credit Billing Act Equal Credit Opportunity Act Fair Credit Reporting Act Fair Debt Collection Practices Act Environment Clean Air Act Clean Water Act

Resource Conservation and Recovery Act