creating and starting the venture em ch 3
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Creating and Starting the
Venture
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Creativity and the Business Idea
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SOURCES OF NEW IDEAS
consumers, existing products and services,
distribution channels, the federal
government, and research and
development.
1. Consumers
attention to potential customers.
informally monitoring potential ideas
opportunity to express their opinions.
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SOURCES OF NEW IDEAS
2. Existing Products and Services method for monitoring and evaluating competitive products and
services on the market.
a new product or service that has more market appeal.
3. Distribution Channels their familiarity with the needs of the market.
suggestions for completely new products,
4. Federal Government the files of the Patent Office contain numerous new product
possibilities.,
available for license or sale..5. Research and Development
The largest source of new ideas is his own research anddevelopment, .
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METHODS OF GENERATING IDEAS
Focus groups, brainstorming, and problem inventory analysis.
1. Focus Groups
Group of people providing idea in a structured manner.
A moderator leads a group of people through an open, in-depth
discussion rather than simply asking questions to solicit participantresponse.
group of 8 to14 participants motivated by comments from othergroup members
Creatively conceptualizing and developing a new product idea tofulfill a market need..
excellent method for initially screening ideas and concepts.
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METHODS OF GENERATING IDEAS
2. Brain Storming A group method for obtaining new ideas and solutions
stimulated to greater creativity by meeting with others andparticipating in organized group experiences..
focuses on a specific product or market area.
should be fun, with no one dominating or inhibiting the discussionfour rules should be followed:
I. No criticism is allowed by anyone in the groupno negative comments.
2. Freewheeling is encouragedthe wilder the idea, the better.
3. Quantity of ideas is desiredthe greater the number of ideas, the
greater the likelihood of the emergence of useful ideas.4. Combinations and improvements of ideas are encouraged; ideas ofothers can be used to produce still another new idea.
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METHODS OF GENERATING IDEAS
3. problem Inventory analysis
A method for obtaining new ideas and solutionsby focusing on problems
uses individuals in a manner that is analogous tofocus groups to generate new product ideas.
instead of generating new ideas themselves,consumers are provided with a list of problems
in a general product category. used to test a new product idea.
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problem Inventory analysis
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CREATIVE PROBLEM SOLVING
Brainstorming
Reverse brainstorming
Brainwriting
Gordon method
Checklist method
Forced relationships
Collective notebook method
Attribute listing method
Big-dream approach
Parameter analysis.
Free association
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CREATIVE PROBLEM SOLVING
1. Brainstorming
used for both creative problem solving and idea
generation.
solving, generating ideas about a problem within
a limited timeframe, the spontaneous
contributions of participants.
All ideas, no matter how illogical, recorded, withparticipants prohibited from criticizing or
evaluating during the brainstorming session.
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CREATIVE PROBLEM SOLVING
2. Reverse brainstorming
A group method for obtaining new ideas
focusing on the negative
criticism is allowed.
the technique is based on finding fault
involves the identification of everything wrong
with an idea, followed by a discussion of ways toovercome these problems.
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CREATIVE PROBLEM SOLVING
3. Brainwriting
a form ofwritten brainstorming.
Bernd Rohrbach.
is silent, written generation of ideas by a group
of people.
participants write ideas on special forms or
card,circulate within the group, usually consists of six members.
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CREATIVE PROBLEM SOLVING
4. Gordon Method
Method or developing new ideas when the individuals
are unaware of the problem
group members not knowing the exact nature of theproblem.
the solution is not clouded by fixed ideas and behavioral
patterns.
The actual problem is then discovered, enabling thegroup to make suggestions for execution or modification
of the final solution.
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CREATIVE PROBLEM SOLVING
5. Checklist Method
Developing a new idea through a list of relatedissues or suggestions
use the list of questions or statements to guidethe direction of developing new ideas orconcentrating on specific idea areas.
Put to other uses? New ways to use as is? Other
uses if modified? Adapt? copy? Modify? Magnify? Stronger?
Larger? Thicker?
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CREATIVE PROBLEM SOLVING
6. Free Association
Developing a new idea through a chain of word
associations
helpful in developing an entirely new slant to a problem. a word or phrase related to the problem is written down,
another and another, with each new word attempting to
add something new to the ongoing thought processes,
thereby creating a chain of ideas ending with a new
product idea emerging.
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CREATIVE PROBLEM SOLVING
7. Forced Relationships
Developing a new idea by looking at product combinations
Process of forcing relationships among some productcombinations.
a technique that asks questions about objects or ideas in aneffort to develop a new idea.
1. Isolate the elements of the problem.
2. Find the relationships between these elements.
3. Record the relationships in an orderly form.4. Analyze the resulting relationships to find ideas or patterns.
5. Develop new ideas from these patterns.
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CREATIVE PROBLEM SOLVING8. Collective Notebook Method
a new idea by group members regularly recording ideas a small notebook that easily fits in a pocketcontain a statement of the
problem,.
9. Attribute Listing Developing new idea by looking at the positives and negatives
an idea-finding technique that requires to list the attributes of an item orproblem and then look at each from a variety of view points.
10.Big-Dream Approach Developing a new idea by thinking without constraints
come up with a new idea requires that the entrepreneur dream about the
problem and its solution, thinking big.
11.Parameter Analysis Developing a new idea by focusing on parameter identification and creative
combination
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OPPORTUNITY RECOGNITION
PROCESS
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PRODUCT PLANNING AND DEVELOPMENT
PROCESS
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Establishing Evaluation Criteria At each stage of PPDP criteria for evaluation need to be established.
evaluate the new idea in terms ofmarket opportunity, competition, the marketing system,financial factors, and production factors.
A market opportunity in the form of a new or current need for the product idea must exist.
The determination of market demand is by far the most important criterion of a proposed newproduct idea.
the characteristics and attitudes of consumers or industries that may buy the product, the sizeof potential market, the nature of the market with respect to its stage in the life cycle (growing
or declining), and the share of the market the product could reasonably capture. competing producers. prices, and marketing policies
should meet or overcome current and anticipated competition.
The new product should have synergy with existing management capabilities and marketingstrategies.
The manufacturing cost per unit, the marketing expense, and the amount of capital to bedetermined to break-even point and the long-term profit outlook for the product.
The compatibility requirements with existing plant, machinery, and personnel should also beevaluated.
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PRODUCT PLANNING AND DEVELOPMENT
PROCESS
Idea Stage
new product ideas be identified and impractical
ones eliminated.
determine potential needs of the market in terms
of timing, satisfaction, alternatives, benefits and
risks, future expectations. price-versus-product
performance features, market structure and size,
and economic conditions.
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PRODUCT PLANNING AND DEVELOPMENT
PROCESS
Concept Stage
the refined product idea is tested to determine
consumer acceptance.
it should be further developed and refined
through interaction with consumers.
Features, price, and promotion should be
evaluated
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PRODUCT PLANNING AND DEVELOPMENT
PROCESS
Product Development Stage
consumer reaction to the physical product is
determined.
Test Marketing Stage
provides actual sales results, which indicate the
acceptance level of consumers.
Positive test results indicate the degree ofprobability of a successful product launch and
company formation.
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E-COMMERCE AND BUSINESS START-UP
the opportunity to be very creative and innovative.
widespread use of personal computers, the adoptionof internets in companies, and the acceptance of theInternet as a business communications platform.
Numerous benefitssuch as access to a broadercustomer base, lower information disseminationcosts, lower transaction costs, and the interactive
nature,
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Legal issues for the entrepreneur
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INTELLECTUAL PROPERTY
includes patents, trademarks, copyrights, and tradesecrets.
NEED FOR A LAWYER business is regulated by law,
the legal expertise required based on the new venture is a franchise,
an independent start-up,
or a buyout,
produces a consumer versus an industrial product; it is nonprofit
aspect of computer software, exporting, or importing.
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LEGAL ISSUES IN SETTING UP THE ORGANIZATION
issues as liability,
taxes,
continuity, transferability of interest,
costs of setting up,
attractiveness for raising capital.
Legal advice for agreements
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PATENTS
A patent is a contract between the government
and an inventor.
the government grants the inventor uniqueness
regarding the invention for a specified amount oftime.
At the end of this time, the government publishes
the invention and it becomes part of the publicdomain.
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The Patent Application
patent application must contain a complete history and description of theinvention as well as claims for its usefulness.
Introduction. background and advantages of the invention
the nature of problems that it overcomes. state how the invention differs from existing offerings.
Description of invention. a brief description of the drawings that accompany it.
drawings must comply with PTO requirements.
detailed description of the invention, which may include engineering
specifications, materials, components, vital to the actual making of theinvention.
Claims. criteria by which any infringements will be determined.
to prevent others from getting around the patent.
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Patent Infringement
entrepreneur to be sensitive about whether he or she isinfringing on someone elses patent.
someone else already has a patent does not mean the end of
any illusions of starting a business. Many businesses, inventions, or innovations are the result of
improvements, or modifications of, existing products.
If it is impossible to copy and improve the product to avoid
patent infringement, the entrepreneur may try to license theproduct from the patent holder.
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Seek a patent attorney having expertise in yourproduct line
design patent protect, the product design or productlook
Before making an external disclosure seek legalcounsel
Evaluate competitor insight into what they may be
developing. Be sure to mark product granted a patent.
Consider licensing patents.
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TRADEMARKS
may be a word, symbol, design, or some
combination,a slogan or even a particular
sound that identifies the source or
sponsorship of certain goods or services.
can last indefinitely, as long as the mark
continues to perform its indicated function.
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coined marks denote no relationship between
the mark and the goods or services e.g..
Mercedes. Kodak) and afford the possibility of
expansion to a wide range of products
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an arbitrary mark is one that has another meaning in language (e.g.,Apple) and is applied to a product or service.
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a suggestive mark is used to suggest certain features, qualities,ingredients, or characteristics of a product or service
suggest some describable attribute of the product or services.
a descriptive mark must have become distinctive over a significant periodof time and gained consumer recognition before it can be registered. Themark then is considered to have secondary meaning; that is, it isdescriptive of a particular product or service (e.g., Ruberoid as applied toroofing materials that contain rubber).
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Registering a trademark
Exclusive rights to the use of the mark
sue in federal court for trademark infringement
(profits, damages and costs).
Incontestable rights for commercial use of the mark.
prevent importation of goods with a similar mark.
entitles you to use the notice of registration
Provides for filing application in foreign countries.
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COPYRIGHTS
A copyright protects original works ofauthorship.
the tremendous growth of the use of the
Internet, especially to download music,literary work, pictures, and videos
computer software, books, scripts, articles,poems, songs, sculptures, models, maps,blueprints, collages, printed material on boardgames, data, and music.
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TRADE SECRETS
maintain an idea or process as confidential
and to sell or license it as a trade secret.
will have a life as long as the idea or process
remains a secret.
not covered by any federal law
recognized under a governing body of
common laws in each state.
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LICENSING
an arrangement between two parties, where one partyproprietary rights over some information, process or
technology protected by patent, trademark, or copyright.
requires the licensee to pay a royalty or some other specifiedsum for permission to copy the patent, trademark, orcopyright.
involves a franchising agreement.
agrees to pay a fixed sum for use of the trademark, pay aroyalty based on sales volume, buy supplies from thefranchisor
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PRODUCT SAFETY AND LIABILITY
Responsibility of a company to meet any legal
specifications regarding a new product by the
Consumer Product Safety Act
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Insurance
Property Fire insurance explosion, riot, vehicle damage, windstorm hail, and
smoke
Burglary and robbery Business interruption
Casualty bodily injury or property damage Automobile liability
Life Life insurance
Workers compensation work-related injury
Bonding in case of employee theft of funds or
protects contractor if subcontractor fails to complete a job
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CONTRACTS
Consideration.
competent and/or have the right to negotiate
Contract legal
Voluntary acceptance of offer.
oral or written
voluntary acceptance of offer is given.
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THE BUSINESS PLAN
CREATING
AND STARTING THE VENTURE
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WHAT IS THE BUSINESS PLAN
a written document prepared by the
entrepreneur that describes all the relevant
external and internal elements involved in
starting a new venture.
an integration of functional plans such as
marketing, finance, manufacturing, human
resources.
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SCOPE AND VALUE OF THE BUSINESS PLAN
The business plan may be read by employees, investors,bankers, venture capitalists, suppliers, customers, advisors,and consultants.
three perspectives considered in preparing the plan.
1. perspective of the entrepreneur articulate what the venture is all about.
2. the marketing perspective.
must try to view their business through the eyes of their customer.
3. the entrepreneur should try to view his or her businessthrough the eyes of the investor.
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EVALUATE THE BUSINESS PLAN?
suppliers,
Customers
suppliers of capital lenders or investors
banks
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PRESENTING THE PLAN
The entrepreneurs are expected to sell their business concept in this short time periodwith the audience given the opportunity to ask difficult and penetrating questions.
the benefit is that they are presenting in one place, to a number of firms or individualswho could immediately decide they like the plan and request further negotiation, leadingto a final investment decision.
Some investors describe these plans as the elevator plan. Its analogous to a situationwhere an entrepreneur would get on an elevator with one or more investors and try to
persuade them that he or she is a good investment before the elevator reaches its finaldestination.
It is also likely that a venture capitalist or angel group would ask the entrepreneur topresent to their partners before making a final decision on whether to invest. In all theseinstances the entrepreneur must decide what to say in this short time frame.
focus is on why this is a good opportunity, an overview of the marketing program(addresses how the opportunity will convert to reality), and the results of this effort (sales
and profits). remarks might reflect the recognized risks and how the entrepreneur plans to address
them. Remember,
effort is really designed to sell the investors on why this would be a good investment forthem.
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INFORMATION NEEDS
FOR BUSINESS PLAN
information, obtainable from many sources,
should focus on marketing, finance, and
production.
goals and objectives also provide a framework
for the business plan, marketing plan, aid
financial plan.
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Market Information
to build a strong marketing plan with
reasonable and measurable market goals and
objectives the entrepreneur will need to
gather information on the industry andmarket.
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the process by evaluating general
environmental trends.
include household income trends,
population shifts, food consumption habits
and trends, travel, employment trends.
assessment of trends in the national food
service industry look for data on total food
sales and commercial restaurant sales by
type of restaurant.
O ti I f ti N d
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Operations Information Needs
Location.The companys location, accessibility to customers, suppliers, anddistributors need to be determined.
Manufacturing operations.Basic machine, assembly operations, subcontracted and by whom.
Raw materials.
raw materials, suppliers names, addresses, and costs Equipment.
The equipment, cost, purchased or leased. Labor skills.
unique skill needed, the number of personnel in each skill, pay rate,anassessment of where and how these skills will be obtained should be
determined. Space.The total amount of space needed space will be owned or leased.
Overhead.support manufacturing-such as tools, supplies, utilities, and salaries
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FINANCIAL INFORMATION NEEDS
prepare a budget ,all possible expenditures , a list ofall revenue sources including sales and any externalavailable funds.
capital expenditures, direct operating expenses, andcash expenditures for non expense items. Therevenues from sales must be forecast from marketdata
identify benchmarks in the industry to prepare thefinal pro forma statements in the financial plan.
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USING THE INTERNET AS A RESOURCE TOOL
access information, business activities efficiently, expediently, and at very little cost.
business intelligence resource, provides opportunities for marketing strategy whichthrough its website, information on the company, its products and services, and itsordering instructions.
information about the market, competition, and customers as well as to distribute,advertise, and sell company products and services.
Compared with alternative sources the entrepreneur need only make a small investmentin hardware and software to be ready to use these online services.
With the continuous improvements and modifications in the Internet, the opportunitiesfor the entrepreneur in planning the start-up or the growth of a venture will beinvaluable.
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WRITING THE BUSINESS PLAN
could take hundreds of hours to prepare
depending on the experience
knowledge
purpose it is intended to serve.
comprehensive enough
a complete picture
understanding of the new venture clarify his or her thinking about the business.
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BUSINESS PLAN1. Introductory Page
Name and address of business
Name(s) and address(es) of principal(s)Nature of business
Statement of financing needed
Statement of confidentiality of report
2. Executive SummaryThree to four pages summarizing the complete business plan
3.. Industry AnalysisFuture outlook and trends
Analysis of competitors
Market segmentation
Industry and market forecasts
4.Description of VentureProduct's
Service's
Size of business
Office equipment and personnel
Background of entrepreneurs5.Production Plan
Manufacturing process ( subcontracted)
Physical plant
Machinery and equipment
Names of suppliers of raw materials
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BUSINESS PLAN6. Operational Plan
Description of company's operationflow of orders for goods and/or services
Technology utilization
7. Marketing PlanPricing
Distribution
Promotion
Product forecastsControls
8 Organizational PlanForm of ownership
Identification of partners or principalshareholders
Authority of principals
Management-team background
Roles and responsibilities of members oforganization
9. Assessment of RiskEvaluate weakness of business
New technologies
Contingency plans
10. Contingency plansFinancial Plan
Pro forma income statement
Cash flow projections
Pro forma balance sheet
Break-even analysis
Sources and applications of funds
11.Appendix (contains backup material)Letters
Market research data
Leases or contracts
Price Lists from suppliers
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Measuring Plan Progress
Inventory control. . The faster the firm gets back its investment in raw materials and finished
goods, the faster that capital can be reinvested to meet additionalcustomer needs.
Production control.
control machine time, worker hours, process time, delay time, anddowntime cost.
Quality control. the product performs satisfactorily.
Sales control.
Information on units, dollars, specific products sold, price of sales, meetingof delivery dates, and credit terms is useful to get a good perspective ofthe sales of the new venture.
Disbursements. The new venture should also control the amount of money paid out.
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WHY SOME BUSINESS PLANS FAIL
Goals set are unreasonable.
Goals are not measurable.
not made a total commitment to the business
or to the family.
has no experience in the planned business.
has no sense of potential threats or
weaknesses to the business,
No customer need was established for the
proposed product or service.
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THEMARKETING PLAN
MARKETING RESEARCH FOR THE NEW
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MARKETING RESEARCH FOR THE NEW
VENTURE
the gathering of data in order to determine
such information as who will buy the product
or service
size of the potential market,
price that should be charged,
the most appropriate distribution channel,
most effective promotion strategy
Marketing Research
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Marketing Research
Step One
Defining the Purpose or Objectives a list of the information that will be needed to prepare the
marketing plan.
ask people what they think of the product or service
background demographics and attitudes of theseindividuals.
potential customers willing to pay for the product orservice.
potential customers prefer to purchase the product or
service. customer to expect to hear about or learn about such a
product or service.
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Step Two
Gathering Data from Secondary Sources
Secondary sources - gathering information for the
industry analysis section of the business plan.
trade magazines, newspaper articles, libraries,government agencies, and the Internet provide
information on industry market and competitors.
Commercial data may also be available,
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Step Three
Gathering Information from Primary Sources
observation, networking. interviewing, focus
groups, or experimentation data collection
instrument, such as a questionnaire. competitors, the customer, and the industry, using
networking, trade associations, recent
publications.
Focus groups - gathering in-depth information.
issues in an informal, open format.
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Step Four
Analyzing and Interpreting the Results
Depending on the size of the sample, the results
can hand-tabulate or entered on a computer.
the results evaluated and interpreted in responseto the research objectives specified in the first
step of the research process.
data cross-tabulated to provide more focused
results.
UNDERSTANDING THE MARKETING
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UNDERSTANDING THE MARKETING
PLAN
Situation analysis
Background of venture
Strengths and weaknesses of venture
Market opportunities and threats Competitor analysis
Marketing objectives and goals
Marketing strategy and action programs
Budgets
Controls
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Characteristics - MARKETING PLAN
To provide a strategy for accomplishing the company missionor goal.
based on facts and valid assumptions.
Allocation of all equipment, financial resources ,humanresources must be described.
provide for continuity, successfully meeting longer-term goalsand objectives.
should be simple and short.
success of the plan may depend on its flexibility. specify performance criteria that will be monitored and
controlled.
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Marketing Mix
Combination of product, Quality of components or materials, style, features, options, brand
name, packaging, sizes, service availability and Warranties
Price,
Quality image, list price, quantity, discounts, allowances for quickpayment credit terms, and payment period
Promotion
Media alternatives, message, media budget, role of personal selling,sales promotion (displays, coupon) Media interest in publicity
Distribution wholesaler & length of channel, geographic coverage, inventory. and
transportation
Other marketing activities
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STEPS IN PREPARING THE MARKETING PLAN
Situation analysis
Tells about past and presents business achievements of
new venture
Target Market Specific Group of potential customers towards venture
aims its marketing plan
Market segmentation
Process of dividing a market into definable andmeasurable groups for purposes of targeting marketing
strategy
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WHY SOME PLANS FAIL
Lack of a real plan The marketing plan is superficial and lacks detail and
substance, ly regarding goals and objectives.
Lack of an adequate situation analysis It is invaluable to know where you are and where you have
been, before deciding where you want to go.
Unrealistic goals lack of understanding of the situation.
Unanticipated competitive moves, productdeficiencies, and acts of Gods
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THE ORGANIZATIONAL PLAN
LEGAL FORMS OF BUSINESS
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LEGAL FORMS OF BUSINESS
three basic legal forms of business formation
(1) proprietorship,
(2) partnership,
(3) corporation
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TAX ATTRIBUTES OF FORMS OF BUSINESS
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TAX ATTRIBUTES OF FORMS OF BUSINESS
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important considerations and strategies in recruiting andassembling an effective team and creating an effective andpositive organization culture.
First, the entrepreneurs desired culture must match thebusiness strategy outlined in the business plan.
Second, the leader(s) of the organization must lead and be rolemodels for their employees.
Third, the entrepreneurs should be flexible enough to trydifferent things.
Fourth, it is necessary to spend extra time in the hiring process.
Leadership needs to establish core values and provide the
appropriate tools so that employees can effectively completetheir jobs.
Finding the most effective team and creating a positiveorganization culture is a challenge is just as critical as having aninnovative, marketable product.
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The Financial Plan
OPERATING AND CAPITAL BUDGETS
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OPERATING AND CAPITAL BUDGETS
Capital budgets - to provide a basis forevaluating expenditures that will impact the
business for more than one year. To project expenditures for new equipment,
vehicles, computers, or even a new facility.
evaluating the costs of make or buy decisionsin manufacturing or a comparison of leasing,buying used, or buying new equipment.
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Pro-forma income statement
Projected net profit calculated from projected revenues
minus projected costs and expenses
PRO FORMA CASH FLOW
Projected cash available calculated form projected cash
accumulation minus projected cash disbursement
help justify
pro forma balance sheet reflects the position of the business at the end of the first
year. summarizes the assets, liabilities, and net worth
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BREAK-EVEN ANALYSIS
volume of sales at which the business will neither
make a profit nor incur a loss.
break-even sales point the volume of salesneeded to cover total variable and fixed expenses.
proforma sources & applications of funds
Summarizes projected sources of funds availableto the venture and how these funds will he
disbursed
planning tools is designed to provide clear picture of where funds come
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planning tools is designed to provide clear picture of where funds comefrom, how they are disbursed, the amount of cash available,the generalfinancial well-being of the new venture.
The pro forma income statement provides a sales estimate in the first
year (monthly basis) and projects operating expenses each month. Cash flow is not the same as profit. It reflects the difference between
cash actually received and cash disbursements.
Many new ventures have failed because of a lack of cash, even when theventure is profitable.
The pro forma balance sheet reflects the condition of the business at theend of a particular period. It summarizes the assets, liabilities, and networth of the firm.
The break-even point can be determined from projected income.
measures the point where total revenue equals total cost.
The pro forma sources and applications of funds statement understandhow the net income for the year was disposed of and the effect of themovement of cash through the business.
emphasizes the interrelationship of assets, liabilities, and stockholdersequity to working capital.