ed lecture note 060219

8/6/2019 ED Lecture Note 060219

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Entrepreneurial Development - 1

Entrepreneur the evolution of the Concept:

Thomas Alva Edison invented a workable incandescent lightbulb, more than a century ago. Then he formed a company bybringing Human and Financial resources needed to implementhis vision of commercial and residential lighting. This companywas the fore-runner of the General electric Company.

Dan Bricklin invented Electronic Spreadsheet (VisiCalc)and formed the company Software Arts Inc. Now MS Excel

is very popular

Howard Schultz, manager of Starbucks convinced his

employer to test the espresso bar concept of Europe inAmerica. The success encouraged him to start his owncompany in 1985. In two years time he acquired Starbucks.Invited private investors. By 2003, Starbucks had more than7200 retail outlets with reported revenue of $4 billion.


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Analysis of the history Edison recognized the business opportunity of electric

illumination He developed the technical competence to makeincandescent bulb He risked by investing and inviting others to invest to form acompany to pursue the mission

Schultz identified the opportunity of replicating the service He convinced his employer to test (risk) the concept He started his own company and with outside investmentacquired the competitor

Bricklin recognized the business opportunity of electronicspreadsheet He developed the technical competence to produceVisiCalc He risked by investing to form his company MS identified the opportunity to add value to the original

concept and developed a superior product EXCEL



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Factors that can be generalized

Recognition of a need for a new product / service

Identification of an opportunity to introduce aproduct / service new to an area

Identification of an opportunity to add value to theconcept of a product / service

Taking financial risk to form a company to pursuethe mission


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Meaning / Definition of Entrepreneur:

A person who identifies an opportunity and pursues it.

William Bygrave extended this by describing the Entrepreneur assomeone who not only perceives an opportunity but also createsan organization to pursue it.

One who organizes resources productively and bears the risk ofthe venture.[APICS dictionary 11th edition]

Person who starts or organizes a commercial enterprise,especially one involving financial risk.

Entrepreneurs recognize the commercial opportunity and pursueit through an organization, their own managerial and technical

talents, and some combination of human and financial capital,bearing the risks of success or failure.

Lifestyle enterprise


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The Role of Entrepreneurs

Act as a force for creative destruction

Agents of change and hopefully progress

Introduce new products / services

Form enterprises and marshal resources to deliver value and choice tosociety thus different from inventors

Replace stagnant industries with growing ones with new employmentwith higher salaries

Provide the following:

An entirely new idea / product / service

An improved version of an existing idea / product / service

A cheaper idea / product / service

More reliable as to delivery or after-sales service of product / service

More readily available product / service to local customers


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Entrepreneurial Development - 6A

Views of Management Philosophers on Entrepreneur

The word entrepreneur is derived from the French word entreprendremeaning to undertake. Frenchmen who organized and led militaryexpeditions were referred to as entrepreneurs. Then architects andcontractors.

The term entrepreneur was initially applied to business by Frencheconomist Cantillon in 18th century. This idea was expanded by JB Saywhen he conceptualised the entrepreneur as an organiserof a businessfirm, central to its distributive and production functions. The profitbelongs to the entrepreneur.

Joseph A. Schumpter: The entrepreneur in an advanced economy is anindividual who introduces something new in the economy a method of

production not yet tested by experience in the branch of manufactureconcerned, a product with which the consumers are not yet familiar, a newsource of raw material or of new markets and the like. He further statesthe entrepreneurs function is to reform or revolutionise the pattern ofproduction by exploiting an invention or more generally an untriedtechnological possibility for producing a commodity.


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Entrepreneurial Development - 6B

Francis A. Walker: The true entrepreneur is one who is

endowed with more than average capacities in the task oforganising and coordinating the various factors of production.He should be a pioneer, a captain of industry. The moreefficient entrepreneurs receives a surplus reward over andabove the managerial wages and this sum constitutes true

profit ascribable to superior talent.

PeterF. Drucker: Innovation is the specific tool ofentrepreneurs, the means by which they exploit changes as anopportunity for a different business or a different service. It is

capable of being presented as a discipline, capable of beinglearned and practised. Entrepreneurs need to searchpurposefully for the sources of innovation, the changes andtheir symptoms that indicate opportunities for successfulinnovation.


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The Making of an Entrepreneur

Self Test

-Can you tolerate a high level of risk?

-Are you an overachiever?

-Are you willing to put in long hours (10 to 12 hours) of work,

including weekends?

-Are you a self starter?

-Are you a good decision maker?

-Are you willing to put your personal fund at risk?

-Do you have commitment to build the business against modestodds of success?

William Bygrave : no neat set of behavioural attributes forentrepreneurs.


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Characteristics

According to Walter Kuemmerle successful entrepreneurs:

-Are comfortable stretching the rules

-Are prepared to make powerful enemies

-Michael Dell & IBM

-Sam Walton Wal-Mart against Sears & Kmart ($259 billion)

-Have patience to start small

-Louis Borders :Webvan (grocery home-delivery) 5000 employees,330,000 sqft automated warehouse, $850M in equity capital, bankruptcy

-KeepMedia (download articles from periodicals for a fee) 32 employees

-Willing to shift strategies quickly

-Customer requirements change

-Unexpected Competition response

-Know how to close a deal

-Manager / Entrepreneur


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Other Valuable Traits

-Negotiating skills

-Technical skills

-Ability to sell vision to others

-Ability to motivate employees

-Knack of turning plans to actions

-A passion for what you are doing

-Motivation that makes business success an importantpersonal goal

-Family background


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Characteristics of Opportunities

-Significant value to customer to pay premium

-Significant profit potential

-Suitable for the entrepreneur

-Durability

-Amenable to financing


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Where to look for opportunities?

New knowledge and Technological changes

Universities / Research Organizations

Regulatory Change

Monopoly restriction

Opening up the skySocial Turmoil and Civic Failure

Rising Crime rate home security

Failure of Govt. to start new Schools / Colleges private

institutions


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Where to look for opportunities? (continued)

Changing Tastes / habits

Eating Out

Avoiding Cinema theatres

The Quest for Convenient Solutions

Substantial increase in discretionary income and decreasein discretionary time

Under the Radar of Big Companies

Opportunity for new lines of business


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Evaluating the Entrepreneurial Opportunity

Real business opportunityshould not be confused with personal interests.

A passion for a product / service is great, but it is no substitute for a soundbusiness opportunity.

Identification of opportunity is the first step. Next is its Evaluation. This is toreveal the Scope and Details of the perceived opportunity.

Steps in Evaluation of Opportunity:

Thorough examination of the MARKET

Assessment of COMPETITION

Analysis of the ECONOMIC VIABILITY

Requirement of Financial & Human RESOURCES


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Market Evaluation

Customer Benefit : Low Price / Greater Expertise / Added value

Market Size : Present number of customers (estimated)

Market Growth rate : Percentage growth rate of customers

Market Share : Percentage of share of business in the

particular area in the first three years /

expected to grow at 5% per year for 5-6 years

Competitors : Existing Specialists / Expected new entrants

Need awareness : Aware of the need / Latent need

Customers : Describe / Name by types

Reaching Customers : Advertising / Exhibitions / Seminars

Product Utility : Quality / Cost / Place & Time of Availability


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The Competition

Entering an existing market ----- Competitors

Market is new ----- Other entrepreneurs

How the customer requirements are met presently? Alternatives to yourproposed product / service

What are the strengths and weaknesses of main competitors? Quality /Service / Price / Availability etc.

How competitors will respond? Quality / Service / Price / Availability etc.

Are the barriers to market entry high or low?

How current competitors are responding to customer needs and technical

changes?

What is the single most worst thing a competitor can do to your businessprospects? Price war / Availability / Service ------ How would yourespond to this? --- What strategy on Pricing / Positioning / Service /Features / Distribution etc.


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The Economics -01

Every business rests on an economic structure and it influences its ability tgocompete and succeed.

Profit Margin = (Profit / Sales Revenue) in percentage.

Cost Structure. Break even analysis.

High Fixed Cost & Low Variable Cost

Eg. Consumer Products

Low Fixed Cost & High Variable Cost

Eg. Consultancy / Technical service

Cost

Volume

Cost

Volume


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The Economics 02

Fixed Costs : Plant/Equipment cost, Rent/Lease payments for buildings,Management salaries, Insurance etc. (Investment)

Variable costs : Direct Materials, Direct labour, Energy, Utilities etc.

Contribution margin : This is the amount of money that every sold unitcontributes to paying for Fixed costs. It is defined as net unit revenue

minus variable (or direct) costs per unit.Unit Contribution Margin = Price per unit Variable cost per unit

Break even volume = Fixed costs / Unit Contribution Margin

Semi variable costs & Price discounts on quantity


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The Economics -03

-Price setter or price taker?

-Pricing Constraints in general?

-Supply / Demand situation?

-Is demand elastic or inelastic?

-What substitutes are available to the prospective customers?

-To what extend the suppliers and employees enforce cost increase on theproposed business?

Return

Risk

Not Acceptable

Risk / ReturnTrade-Off

ed lecture note 060219

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