1. The business eco-system: Your path to finding the pot of gold at the end of the rainbow!
iL,
14.
gold at the end of the rainbow!
. The business eco-system: The business eco-system . The sun rise of your new business Accessing market
opportunity: the initial rim of the wheel
. Sales: the essential rim of the wheel
. Strategy: the tactical rim on the wheel
. Branding will make your blossoms bloom!
. Stakeholders: the connective rim on the wheel . Ethics: the authentic rim on the wheel
. Operations: the logistical rim on the wheel
. New product: the tangible rim on the wheel
. Let the fruits of your labor blossom: the new
product/service launch event plan
. Public relations: the sensational rim on the wheel . Mentor insights: the “Where the Rubber Meets the Road”
spokes on the wheel About this author and acknowledgements
2. The mind of the entrepreneur: Your entrepreneurial journey begins by embarking on your own hero’s journey!
1. 2. 3. 4.
Introduction
Entrepreneur assessment survey Entrepreneurial mindset enhancing activities Chapter summary
3. Business models and marketing:an overview
1. 2. 3. 4.
Learning Objectives
What is a business model? Success factors
Consumer marketing models
OON AD UI
10. 11.
. The marketing model
. Identifying market needs
. Business to business marketing models
. Chapter summary
. Market research to determine the potential market for
funeral services in Monterrey, Mexico Discussion questions References
4. How to organize and lead an entrepreneurial venture
—
. Learning objectives
. Introduction
. Organizational issues
. Organizational stages of growth
. Flat versus tall organizations
. Centralized versus decentralized organizations . Chapter summary
. Discussion questions
. References
5. Selecting and managing your team
1. 2.
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Learning objectives Competitive advantage through human resource management
. Providing employee voice and influence
. Recruiting workers
. Evaluating recruiting policies
. Employee training
. Aligning employee career development with
organizational growth
. Performance appraisal . Determining base pay 10. 11.
Meaningful job design Termination
12 13
. Discussion questions . Exercise
14. References 6. Marketing on a global scale
1.
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8.
Learning objectives
. Defining marketing
. The role of marketing in the firm: a basis for classification . Defining international marketing
. The international marketing plan
. The international marketing environment . Discussion question
. References
erations management
. Learning objectives
. What is operations management?
. The input/output transformation model
. Operations decisions
. Chapter summary
8. Securing and managing external relationships
. Learning objectives
. Introduction to external relationships
. Marketing exchanges and partnerships . Choosing the right relationship
. Strategies for external relationships
. Chapter summary
. Exercises
. References
9. Financial and managerial accounting; financing your organization
. Learning objectives . Introduction . Basic types of accounts . Chart of accounts . Basic financial statements . A short history of accounting and double-entry bookkeeping 8. Ledgers 9. Advanced reports and analyses 10. Budgets 11. Chapter Summary 12. Discussion Questions 13. References 10. Leveraging with information technology 1. Learning Objectives . Introduction . IS tools for the Start-Up Organization . Moving Forward With Information Systems . Know What Your Customers Want . Using Information Technology Competitively . What is IS Risk Management . Chapter Summary . Discussion questions 10. References 11. Competitive intelligence 1. Learning objectives 2. Introduction 3. Definition 4. Importance and goals of competitive intelligence 5 6
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. Information collection methods . The industry environment
7. 8. 2 10.
Porter's 5 forces and the analysis of competitors Methods of evaluating competitors
Chapter summary
Reference
12. Business ethics in a nutshell
1. 2 a.
What is ethics Management: the meta profession Corporate social responsibility
13. Adding products and services
1. . Introduction
. Where does innovation come from?
. Innovation through business models
. Evaluating new products
. When innovation fails: deleting products
10.
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Learning objectives
Chapter summary
. Discussion questions
References
14. International business for the entrepreneur
. Introduction . Globalization: opportunities and threats to developing
country business
. Harnessing technology for global business success
. Doing business across cultures
. Political and legal risk in international business
. Global marketing: Assessing potential markets overseas
. Global finance: initial considerations
. Organizational structure and human resource management . Corporate Social Responsibility and sustainable
development in the global environment
. Case: Built to Last by Jim Collins
11. Chapter summary
12. References 15. Growth strategies for start-ups
1. Learning objectives and overview
. Definition and models . Growth problems . Chapter summary . References, and further literature
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The business eco-system: Your path to finding the pot of gold at the end of the rainbow!
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editor: Molly Lavik (Vatel International Business School Los Angeles, USA)
Reviewer: Debbi D Brock (Berea College, USA) _ Exhibit
Striking gold
Image created by: Taissia Belozerova, Graphic Designer, Artist, MBA
Candidate at Pepperdine University Class of 2009
Dedication: In Memory of Nancy Wachs who believed in everyone’s Startup time!
There are many ways to live your life. One of the most exciting yet challenging ways to live your life is to start your own business or work for someone who has their own startup. People who start their own businesses are known as entrepreneurs. Entrepreneurs throughout the world are extremely enthusiastic individuals who devise visionary methods to accomplish their new venture ideas while simultaneously convincing others to help.
"Merriam-Webster Online defines the term “entrepreneur” as follows:“Etymology: French, from Old French, from entreprendre to undertake — more at enterprise Date: 1852 : one who organizes, manages, and assumes the risks of a business or enterprise”[footnote |" Merriam-Webster’s Online Dictionary, “Merriam-Webster Online,” http://www.merriam-webster.com/dictionary/entrepreneur (Assessed, August 30, 2008).
Are entrepreneurs born or made?
There is a long-standing discussion throughout the world that delves into whether you are born predisposed to become an entrepreneur or is it necessary for you to work and study hard to make yourself into one. There are many examples of individuals who were told they would never amount to anything and yet they went on to become very successful entrepreneurs. So, if you think that you are unlikely to be an entrepreneur, please realize it is possible for you to become an entrepreneur and to, potentially, even become a very successful one. With that said, there are characteristics and an overall mindset you can adopt that will help “predispose” you to having a greater opportunity of becoming a successful entrepreneur. Some of the most common characteristics of an entrepreneur include the following attributes:
Example:
"The Mindset of an Entrepreneur"
Vision: Able to create and communicate an easily understandable mission for what the new venture does in order to successfully launch a new business. This is accomplished while inspiring others to join you in your new enterprise.
Creativity: Ability to inject imagination and uniqueness into a new business venture. It takes skill and ingenuity to create a new venture equipped with strategies to outsmart the competition.
Focus: Able to maintain the vision of the company with unwavering diligence. It’s very easy to get sidetracked especially if you find it necessary to evolve the original vision. Ironically, we have encountered many successful entrepreneurs who get bored easily...
Passion: Desiring to succeed under your own steam [initiative] on a business venture...
Drive: Possessing intrinsic energy to accomplish the business goal even in the face of adversity.
Perseverance: Able to keep going even when faced with seemingly insurmountable obstacles.
Opportunistic Nature: Sees the possibilities even before they exist. Can take advantage of an upcoming trend or unite unrelated processes to create a unique business venture...
Problem Solving Ability: Thrives on coming up with solutions to complex challenges...
Self-discipline: Able to be organized and regimented in pursuit of a successful business venture.
Frugality: Knows how to stretch every cent so that expenditures are as low as possible.
Empathy: Able to put yourself in another’s shoes and therefore able to show sensitivity and understanding of what others are communicating in the startup environment...
Social Responsibility: Ethics, caring and humanitarianism are characteristics that are commonly found in today’s entrepreneurs... Spirituality: We have found that successful entrepreneurs have often devoted time to spirituality development. Meditation and positive affirmations are two common examples of spirituality.
Good Timing: Able to identify a market opportunity and know when it’s the optimum time to launch a new venture or expansion of an existing enterprise.
Luck: Can a person be predisposed to be lucky: Is luck a human behavior or a karmic universal predisposition?” [footnote]
“The Mindset of an Entrepreneur” is reprinted and adapted with permission from Mentorography, Inc. © 2008. All Rights Reserved. Entrepreneurial Marketing; Real Stories and Survival Strategies by Molly Lavik and Bruce Buskirk, introduction pages xxviii-xxx.
Read on: [link] is dedicated to this topic and delves deeply into “The mind of an entrepreneur”.
Blog Back 1: Mindset Blog Back: Is an entrepreneur born or made?
What characteristics are necessary for an entrepreneur to be successful and why? What additional entrepreneurial mindset characteristics could be added to the list and why?
The business eco-system: The business eco-system
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editor: Molly Lavik (Vatel International Business School Los Angeles, USA)
Reviewer: Debbi D Brock (Berea College, USA)
The business eco-system
Whether you possess the characteristics of an entrepreneurial mindset, or work for someone who does, you can still be instrumental in starting a new venture by understanding the business eco-system. What is a business eco- system? A business eco-system is a set of business components that form the foundation of a new venture’s creation. Figuratively, the business eco- system is like a wheel that rolls your new venture forward which is why we represent the business eco-system in a wheel-shaped model .
Exhibit
BUSINESS ECO-SYSTEM WHEEL
‘Ss Ff —owrning
Business eco-system wheel
The Business Eco-system Wheel is reprinted and adapted from the Entrepreneurial Marketing Wheel with permission from Mentorography, Inc. © 2008.
All Rights Reserved. Entrepreneurial Marketing; Real Stories and Survival Strategies by Molly Lavik
and Bruce Buskirk, Preface, page xxii.
The sun rise of your new business Accessing market opportunity: the initial rim of the wheel
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editor: Molly Lavik (Vatel International Business School Los Angeles, USA)
Reviewer: Debbi D Brock (Berea College, USA)
The sun rise of your new business Accessing market opportunity: the initial rim of the wheel
Exhibit 7
Rising sun
Image created by: Taissia Belozerova, Graphic Designer, Artist, MBA Candidate at Pepperdine University Class of 2009
Market Opportunity is positioned at the top of the Business Eco-system Wheel for a reason. Every new venture starts with a single seed or kernel of an idea to do something in business that will result in money being exchanged. Since there is always some risk associated with starting a new business, you will have to take special care to plant the idea seeds of your new venture in a way that allows these seeds to some day bloom into a successful venture.
When to plant your market opportunity seeds
Without a doubt it’s challenging to know when to move forward and plant your new venture ideas in the “business garden” where you want to grow your career.
Entrepreneurs who are considering moving forward with a new venture idea can utilize the following questions and the “Stop and Go Signs for Accessing Market Opportunity Matrix.”
Example:
“Stop and Go Signs for Accessing Market Opportunity Matrix”
"Is there a customer for this product or service? Is there someone who will buy the product or service you're considering selling? You can't effectively answer this question until you have personally spoken to the potential customer and ascertained that this person will buy your product. You need
to know as much about this customer as the customer knows about himself: What are the demographics of this customer? What influences his buying behavior? What factors could lead to this customer changing his mind about buying the product or services? What will be the impact of a crisis during an emerging trend?
What will it cost to make a sale to this customer? If there is a common pitfall for entrepreneur, it's greatly underestimating the cost to acquire and repeatedly sell to a customer. The entrepreneurial marketer must account for every last expense it will take to make the sale. Commonly missed expenses include: staff time, travel and related expenses, overhead for office, payroll taxes, social security employer matching expenses (which occurs in the United States so your countries’ equivalent, ) unemployment payroll related expenses, marketing expenses, and the overall amount of time it takes to make a sale.
Is my timing right for this market opportunity? You will have a brief window of opportunity to launch your new venture or expansion of an existing enterprise. Misjudging your timing is often the difference between success and failure with assessing market opportunity. If you are too early, you have the right product or service but your market is not ready for it yet. If you are too late, giant competitors may have acquired a loyal following, blocking new entries to the market.
Can I sell this product or service for a profit? Even if you have an existing customer, and have accurately estimated what it will cost you to acquire that customer; you might not have a sustainable business model until revenues outweigh the expenses... You need to find the incremental steps you can take to get to profitability. This is not easy. Again, there is no road map, but remember that patience is needed to reach profitability.” (One solution that is becoming a common practice throughout many parts of the world is micro-financing. Micro-financing is where a small loan is made available to an entrepreneur in a developing country. While micro- financing is arguably one form of financing micro-financing has been documented to be a more sustainable form of financing because the amount of the loan is made in such a small (micro) amount that the recipient of the loan does not have to leverage the startup's best interests and assets in order to pay the loan back. The small amount of money loaned to the entrepreneur can usually be paid back from the revenues that
the new venture is generating. Check out this micro financing website: http://www.acion.org.) “Be open and flexible and recognize that along the way to profitability you might stumble on to a product or service that is in higher demand than the original concept. When do I give up on my product or service? When should I pull up the roots of my new venture? In the characteristics of an entrepreneur...perseverance was listed. There is a point, however, where you need to “pull the plug” and refocus your energies. You know you have reached this point when: You have run out of resources and can’t further leverage any of the methods suggested in this book. The customers who said they would buy your product during your research phase are no longer interested. You can’t effectively market to your customer. It costs you more than you make to sell your product or service. During market opportunity assessment, there are times when the entrepreneur needs to “hit the brakes” and stop. Not stopping fast enough can lead to a failed business and/or bankruptcy. There are also times when an entrepreneur should “step on the accelerator” and drive on to new market opportunity territories. Knowing when to stop and go in your new venture market opportunity assessment isn’t easy. To help you decide when to move forward with and when to forego an opportunity, please see the “Stop and Go Signs for Assessing Market Opportunity Matrix." It's common for an entrepreneurial marketer to get caught up in what seems like a great idea or business concept. This matrix is a concise, easy to reference and somewhat simplistic way to make decisions on judging market opportunity. This matrix suggests four major causes for a new venture to not find a profitable market opportunity. Recognizing when you are on the verge of going through a Stop Sign without braking is critical. You can refer back to these stop signs in this matrix as constant reminders of when to turn your market opportunity strategy in another direction.”
Exhibit
Stop and Go Signs for Assessing Market Opportunity Matrix
No Customers Customers’ Unprofitable Resources for the Purchase Sales of the Running Out Product Motivations Product
Unknown
Trends Indicate Timing Right Total Costs for Sales to Emerging Market to Attract Selling the Customers Opportunity Customers Product Known Yield for the Sustainable Product Profitable
Results
Stop and Go Signs for Assessing Market Opportunity Matrix “When to Access Market Opportunity” text and “Stop and Go Signs for
Assessing Market Opportunity Matrix” adapted and reprinted with permission from
Mentorography, Inc. © 2008. All Rights
Reserved. Entrepreneurial Marketing; Real Stories and Survival Strategies by Molly Lavik and Bruce Buskirk, Mini Module on Assessing Market Opportunity, pages xxxix- ie
If you encounter any of the four Go Signs when you are assessing market opportunity, don’t take time out to pat yourself on the back. This is because if you look over your shoulder you may see someone else realizing what you have discovered. Keep “driving on” if you are encountering all Go Signs.” [footnote]
“When to Access Market Opportunity” text and “Stop and Go Signs for Assessing Market Opportunity Matrix” adapted and reprinted with permission from Mentorography, Inc. © 2008. All Rights Reserved. Entrepreneurial Marketing; Real Stories and Survival Strategies by Molly
Lavik and Bruce Buskirk, Mini Module on Assessing Market Opportunity, pages xxxix-xli.
Read on: [link] and [link] discuss market opportunity in greater detail. Blog Back 2: Go Signs
Blog Back: Analyze your new venture’s market opportunity; do you have all “Go” signs? If you have all or some “Stop” signs what can you do to remove the roadblocks that are causing your “Stop” signs? Enter your
Sales: the essential rim of the wheel
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editor: Molly Lavik (Vatel International Business School Los Angeles, USA)
Reviewer: Debbi D Brock (Berea College, USA)
Sales: the essential rim of the wheel
Exhibit
BUSINESS ECO-SYSTEM WHEEL
Market
The Business Eco-System Wheel and sales
What will I sell?
You can sell a product or service. A product is a physical item while a service is something you would implement or execute on behalf of someone else.
Product ideas to consider selling
e Hand-crafted art and artifacts for exporting e Fruit for selling at a fruit stand or using in the production of cosmetics
e Honey that you produce as a bee keeper
e Mustard condiments produced from mustard seeds
e Handcrafted furniture
e Paintings by emerging artists
e Recycled goods made into products such as purses made from recycled juice and soda containers
e A restaurant that offers food menus that others enjoy eating
e Yogurt served in containers that are edible
Ideas for services to consider offering
e Providing education to children as well as adults in a school
¢ Purifying water at the site of wells that may be tainted with arsenic e Providing guide services to travelers
¢ Developing marketing campaigns for local businesses
e Running food stands for others
e Providing tailoring services
e Manufacturing furniture for businesses and residences
¢ Offering cooking services to families
e Selling wireless phones for phone corporations
e Providing people to build buildings, houses, roads and or bridges ¢ Offering out-sourced from other countries call center services
e Providing computer consulting services
Places for inspiration
"Kiva (www.kiva.org) is the world's first person-to-person micro-lending website, empowering individuals to lend directly to unique entrepreneurs in the developing world.” [footnote] Kiva provides a list of entrepreneurs who seek loans and a description of these entrepreneurs’ business concepts. Visit the Kiva website to read the inspirational stories of these entrepreneurs. http://www.kiva.org/app.php ?page=businesses.| footnote |
Kiva, “About: What is Kiva?,” http://www.kiva.org/about (Accessed January 11, 2009).
January 11, 2009).
“Aid to Artisans (ATA), (http://www.aidtoartisans.org) an international nonprofit organization, is a recognized leader of economic development for the craft industry. By linking artisans to new markets and buyers to culturally meaningful and innovative products, ATA provides needed economic opportunities to artisans while preserving the beauty of global handmade crafts.”[ footnote |
Aid to Artisans, “About Us,” http://www.aidtoartisans.org (Accessed January 12, 2009).
Financing: the fundamental rim on the wheel
One of the greatest talents that most successful entrepreneurs possess is the ability to persuade others to invest funds and resources in a startup during the idea creation phase of a new venture. You are not alone if you have major concerns about attracting the finances you need to get your startup idea “off the ground”. If you are reading this and thinking you do not know anyone who would consider investing in your startup we suggest transforming your thinking into a more constructive thought process in which you believe in yourself and your own ability to achieve financing. Financing opportunities
e Micro-financiers (Do a Google search at www.google.com using the key word "micro-finance" to find potential micro-financiers that you may want to research as one method of financing your startup costs.)
e Family traditionally is the first place to look for funds to pay for some of the startup costs associated with a new venture. Even if your family has no resources to offer you can still talk to family members about introducing you to people they know who might be able to help. More money then you can imagine has been raised in this manner.
¢ Friends, even casual acquaintances, can at times provide financing and resources for a startup. Even if a friend is not able to directly help, you should ask each friend or person you contact for help to also provide you with 3 names of others they know who may be able to help.
e Governmental support is also a possibility. If applicable, you can also let the local non-governmental agency associated with what you
are doing know your needs in case there is some support available.
e Barter or trade is a method by which you could provide a needed service such as consulting/management advice in return for the resources needed for your startup.
e Savings take a long time and effort to accumulate in the amount most people need to start a new venture. There are many risks involved and you may not ever be able to replenish the amount of money you took from your savings to invest in a startup. On the positive side though, if you use your own savings you do not have a loan to pay back.
e Bank loans are not usually available to early-stage entrepreneurs unless you have a track record of a previous success and/or the assets to put up such as a home you own in return for securing the bank loan.
¢ Networking refers to attending events, conferences, seminars, and any activity where by you can meet others who might be able to help your further your startup's development.
¢ Online networks are online websites where you can connect with people you know to ultimately gain connections to people they know. One well-known online network is LinkedIn at www.linkedin.com. According to the About LinkedIn website, “LinkedIn is an online network of more then 30 million experienced professionals from around the world, representing 150 industries.”[ footnote] LinkedIn is available in English, French and Spanish. You can use the search field at the top of every LinkedIn web page to search for people and companies that might be willing to finance your startup. You can sign onto LinkedIn and connect with others that would in turn potentially be willing to connect you to the people you are trying to meet. LinkedIn, “About LinkedIn, http://www.linkedin.com/static? key=company_info&trk=hb_ ft abtli (Accessed August 15, 2008).
e Memberships in community organizations may be a place where you can meet like-minded individuals interested in your startup idea. Use the opportunity to share some information about your startup with the people you meet. You may find others who want to help you make your startup a success.
Read on: [link] contains more material on financing your business.
Strategy: the tactical rim on the wheel
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editor: Molly Lavik (Vatel International Business School Los Angeles, USA)
Reviewer: Debbi D Brock (Berea College, USA)
Strategy: the tactical rim on the wheel
Strategy is the method you utilize to go about achieving the underlying goal of your startup. It’s recommended that prior to spending any money on your new venture that you first come up with the strategy or strategies you plan to utilize to make your startup successful. Devising the right strategy often requires a great deal of market research on the history of your competition, potential customer needs and wishes as well a taking into consideration the economic climate and cultural factors that could impact your startup. Examples of startup strategies:
¢ Low cost leader by charging less than the competition
e Luxury cost leader by charging more than the competition
e First to market by having your product or service in the market place prior to anyone else. This strategy is often referred to as the “first mover advantage.”
¢ Creating sustainable growth for a startup means that the new venture will eventually make more money then it takes to operate the company and that the profitability of this venture is possible over an extended period of time.
¢ Creating societal wealth means the company you are starting wants to create a product or service that will make the world a better place. The
product or service you plan to create will enhance societal value. Educational institutions and schools are good examples. Another example is providing foods in the market place that are nutritional in value can have a major positive impact on a society’s health.
¢ Paradigm shifting brand for a startup means creating a product or service that revolutionizes the world! Examples include the first developers of airplanes that not only manufactured the airplane but also found a way to commercialize the product in the market place. An emerging product in this category is space ships. Although it may sound far-fetched today, there are several corporations today developing the design and plans for the day where by we get in our space ship the way we get in our car or on our bicycle. Some wealthy business owners are even today adding space ports to their garages.
Read on: [link] and [link] both contain more information in setting your strategy.
Blog Back 3: Strategy
Blog Back: Imagine that you are starting a new venture utilizing the strategy of creating a paradigm shifting brand. What product and or service might you develop to implement such a strategy?
comment on what you think of two other ideas that others shared regarding their paradigm shifting idea.
Branding will make your blossoms bloom!
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcewill@cnx.org.
Editor: Molly Lavik (Vatel International Business School Los Angeles, USA)
Reviewer: Debbi D Brock (Berea College, USA) Exhibit
Mid day
Image created by: Taissia Belozerova, Graphic Designer, Artist, MBA Candidate at Pepperdine University Class of 2009
Branding: The memorable rim on the wheel
Branding is the core foundation of your startup that is necessary to make your product or service blossom and grow. “Branding” is a commonly used marketing term that refers to a distinctive image, usually in the form of a logo or company mark that represents a company or product. In recent years a company’s brand has become an asset with a financial worth known as “brand equity”. The marketing use of the word “brand’ is borrowed from the process of burning a rancher’s mark into the hide of a calf for identification purposes. When building your brand, the following checklist is helpful for making your startup bloom.
Branding coaching
What is the meaning behind the message your product and/or service represents?
Coaching: Try writing the history of why you are starting this venture and what is the deeper meaning behind why you are doing this and what you hope the legacy of the new venture will be in the market place. Review the history and pull out any information that seems relevant toward the meaning. Then write up some draft messages you hope to communicate when marketing the product or service.
What is the brand essence of your new product or service?
Coaching: The brand essence of your venture is the “heart and soul” behind the product and service you plan to develop; the core DNA of your product or service. The brand essence is the foundation of your brands true identity and the brand essence typically stays the same over time. An example of brand essence is the medical corporation International Patient Assistance Centre headquartered in Singapore. A review of the corporation’s website essence for the medical company is “dedicated and experienced patient care teams”. If you are not able to come up with the brand essence for your
venture try reverse engineering the process by asking yourself what would you like the brand essence of your venture to be and then make a list of action items you would have to do to achieve creating a company with this type of brand essence.
IPAC, International Patient Assistance Care, www.ipac.sg/en/About/ (Accessed January 2, 2009.)
Example:
What is the brand advantage?
Coaching: What sets our brand apart from that of the competition?
Try answering the following:
“What is distinctive about the brand?
What differentiates this brand from the competitor’s?
How do customers perceive the brand?
What emotion does the brand evoke?
Who appreciates the brand? Why?
What do customers get from the brand?
Where do customers go to find the brand?
What do customers see in the brand that the founders didn’t?”[footnote | “Understanding the Essence of Brand Advantages” questions reprinted with permission from Mentorography, Inc. © 2008. All Rights Reserved. Entrepreneurial Marketing; Real Stories and Survival Strategies by Molly Lavik and Bruce Buskirk, Branding that Works, page 79.
Source: “Understanding the Essence of Brand Advantages” questions reprinted with permission from Mentorography, Inc. © 2008. All Rights Reserved. Entrepreneurial Marketing; Real Stories and Survival Strategies by Molly Lavik and Bruce Buskirk, Branding that Works, page 79.
What can you do from the start to make sure that others cannot use the mark or brand name?
Coaching: Investigate what the trade-marking regulations are for protecting your brand. What are the governmental processes for securing a trademark for your brand? “Trade marking” is the process one goes through to register with a government entity the text and or visual depiction of your business
name and, if applicable, the business mark that accompanies the venture. A “logo” is the word utilized typically to describe the visual depiction of the business name.
If you plan to trademark your logo or the text version of your business name for protection you can find out the necessary details of this process at the World Intellectual Property Organization at:
the Madrid System for International Registration Marks explained further at:http://www.wipo.int/madrid/en/.[footnote]
World Intellectual Property Organization, http://www.wipo.int/portal/index.html.en (Accessed January 11, 2009). World Intellectual Property Organization, “Madrid System for International Registration Marks,” http://www.wipo.int/madrid/en/ (Accessed January 11, 2009).
As of October 27, 2008, countries’ statuses are listed regarding the Madrid Agreement Concerning the International Registration of Marks and the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks. View this information at:
arks.pdf.[ footnote |
World Intellectual Property Organization, “Madrid Agreement Concerning the International Registration of Marks and Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks,”
arks.pdf (Accessed January 11, 2009).
Looking for inspiration?
You can find many examples of logos in the process of being trademarked in the United States through the United States Trademark and Patent Office website that posts online “The Trademark Gazette”. Here is an example of
one issue of The Trademark Gazette: http://www.uspto.gov/web/trademarks/tmog/20081230 OG.pdf.[footnote | United States Trademark and Patent Office, “The Trademark Gazette,” http://www.uspto.gov/web/trademarks/tmog/20081230 OG.pdf (Accessed December 24, 2008).
Once you have secured the trademark for your business name, you then process a legal standing to protect against other businesses using your company name in the category you are doing business in. Trademarks are considered assets to a business and have a monetary value if and when you want to sell or merge your venture.
The Brand Identity Guide: A blueprint toward success
Once you have developed your business name into a logo and are in the process of trade-marking that name, many entrepreneurs begin widespread use of the logo in marketing materials to raise awareness of their product or service to their targeted customers. Well-known branded businesses assign someone the task of making sure the logo is properly utilized, with the correct color ink, in the correct size, in the correct location of the page layout especially when used in conjunction with other logos. A style guide for the use of the logo is often called a “brand identity guide”.
Blog Back 4: Brand Identity
Blog Back: Brainstorm the development of a Brand Identity Guide to illustrate the use of your logo in any materials you or others create to market the product or service you would like to create.
What is your brand essence? What is your brand advantage? What font and font size will you utilize for your logo?
What if any visual image/drawing/illustration will accompany the text of your logo?
What colors will you utilize for your logo? Using the pantone color chart, select the exact color(s) you wish to utilize.
Will your logo be depicted differently if it’s used in a horizontal vs a vertical page lay out?
What is the smallest size your logo can appear?
What rules govern your logo’s use when it appears with logos from other companies such as may be the case with a sponsorship?
In what countries would you like to trademark your logo?
Is there anything else you would like to share about the brand you plan to create?
Identity Guide.
Stakeholders: the connective rim on the wheel
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editor: Molly Lavik (Vatel International Business School Los Angeles, USA)
Reviewer: Debbi D Brock (Berea College, USA)
Stakeholders: the connective rim on the wheel
Your brand cannot bloom unless you ensure that you develop your brand in a way that will please everyone who comes into contact with your business. The people who come in contact with your business’s brand are known as your startup’s stakeholders. Who will be your startup’s stakeholders? “Take aim” carefully as you decide. Consider establishing contacts with some of the following suggested stakeholder categories common to new venture enterprises mentioned in the “Startup Stakeholder Arrow”.
Exhibit
Startup Stakeholder Arrow
Strategists:
Strategic Partners
Strategic Advisors . Chambers of Me ntors:
Membership Organizations | Custom
—————j External:
Governmental: Local
Angel Investors Regional
Grants Federal
Sponsors Government Unions Grassroots: United Nations ¢ Viral
Suppliers/ Vendors
Ministries * Influencers Shareholders: Consulates * Street Teams * Vested NGOs
* Vesting * Owners
“Startup Stakeholder Arrow” created by Molly Lavik, founder, Mentorography, Inc., January 12, 2009. Reprinted with permission from Mentorography, Inc. © 2009. All Rights Reserved.
The stems of growing startups: definitions of “startup stakeholder arrow” selected terms
Strategists: A strategist is a skilled person who may be adept at taking your overall vision for the business and developing the plan of action for achieving the overarching goals. Strategists are experts at coming up with the winning maneuvers for laying the foundation of having a successful
venture. The term strategy was originally utilized to define military maneuver plans.
Exhibit
Mid Day (Adapted)
Image created by: Taissia Belozerova, Graphic Designer, Artist, MBA Candidate at Pepperdine University Class of 2009
Strategic advisors: Advisors are people typically with experience in an area that you wish to learn more about. Advisors impart valuable wisdom that you can utilize to learn valuable lessons regarding generating revenue and profits for your planned venture.
Chambers of Commerce: Chambers of Commerce are large memberships of business federations representing hundreds and sometimes thousands of business owners.
Network: Your business contacts that can help you today or in the future accomplish your goals. Entrepreneurs need vast networks of people's assistance to achieve the venture's goals.
Financiers: Financiers are comprised of people or a business entity that provides financial resources for your new business to utilize.
Micro-financiers: These are people who make cash loans in very small amounts to entrepreneurs in emerging countries to people who have very little if any resources. Often the people who receive micro-financed loans have little to no experience in business. A website where people can see micro-financing in action is located at: http://www.accion.org.
Venture capitalists: These are people who have a high net worth of resources or are part of an institution that has a fund of high net worth. Venture capitalists seek out entrepreneurs who are starting new ventures that have an opportunity to make a large and fast return on the financial resources invested. The main category that venture capitalists have previously invested in has been the technology industry. A venture capitalist does not make any money until the new venture sells, merges or makes an initial public offering known as an IPO when for the first time that business offers common stocks to the public. Entrepreneurs have had a "love and hate" relationship with venture capitalists because if the new venture doesn't make the anticipated return on investment predicted the venture capitalists usually has the legal right to take over part or all of the ownership of the new venture leaving the entrepreneurship often out of the venture from that point forward. Venture capitalists also have the ability to provide the cash as well as mentoring resources needed for the new venture to thrive.
Angel investors: These are private individuals that typically have large amounts of resources to invest in your startup. Angel Investors choose to invest in your startup because they share a common interest in what you are doing.
Shareholders: A person who owns or holds stock in a business.
Vesting: Vesting occurs when a person associated with a business venture is granted legally the right to possess stock-options if they work for a specified term. By way of example a person's stock options could vest over a three year period with the person earning stock-options incrementally and fully vesting in all the promised stock-options at the completion of the three year term.
Mentors: These are role models who you can receive instruction, advice and coaching from regarding important lessons to follow to make your new venture a success.
Ministries: These are offices that provide service to the country or state of origin.
Consulates: These are the official offices of a government appointee. These offices can be located in the country of the government that made the appointment and or abroad NGOs: Stands for non-governmental organization and NGOs are run by people who are not part of the government although governments can partially fund an NGO as long as the funding government agency doesn't retain any type of representative or leadership role in the NGO. In the United States a type of NGO is referred to as a non-profit organization. NGOs typically have organization missions and goals that are dedicated to creating greater societal value versus existing to stay solely focused on generating profits.
Ad agency: This is a company that you hire to develop for pay advertisements to ensure that your targeted market is aware and enticed to purchase your product or service.
PR agency: A company that you hire to generate favorable publicity about your new business to people who have been found through market research potentially interested in buying your product or service
eMarketers: A group of people that you hire to implement your digital media strategy for the online and potentially via cell phone marketing of
your new business. eMarketers utilize ultimately any form of electronic media to promote and advertise your business.
Netroots: This word is a newly coined termed that combines portions of the words Internet and grassroots to define a type of marketing that targets blogs and digital media in order to cause powerful action for achieving your new venture goals. The term originally described political action and has recently been utilized to describe business action. Bloggers: This term describes someone who keeps an online diary/journal/log of his or her activities or comments on others' activities. One of the most popular blogs in the world is about entrepreneurs and is kept by Guy Kawasaki called, How to Change the World: A practical blog for impractical people. Check it out: http://blog,guykawasaki.com.
Social networks: These are websites dedicated to fostering a community of individuals around a topic. We mentioned LinkedIn earlier; Facebook is another social networking example. According to Facebook's website, "Millions of people use Facebook everyday to keep up with friends, upload an unlimited number of photos, share links and videos, and learn more about the people they meet.”[ footnote |
Facebook, “Molly Lavik,” http://www.facebook.com (Accessed December 24, 2009).
Readers of this chapter are invited to join my Facebook page by registering to become a Facebook member at http://www.facebook.com (it is free and a social networking site) and then enter Molly Lavik into the search field and click on my name. Then select add as a friend.
Texting: This is when you type in a message with photos or in some cases a video via a cell phone
Grassroots: This is a powerful movement of every day people for a cause. Currently there is a grassroots movement to protect the environment throughout the world.
Viral: This happens when a marketing message is transmitted through people excitedly and enthusiastically spreading the message by telling others who tell others who tell others and so forth. When a marketing
message is spread via "word-of-mouth" the message is visually depicted as spreading in the same way a cold virus spreads and multiplies through a growing number of people in the wintertime. Marketers spend a great deal of money to attempt to initiate the spread of messages via word-of-mouth. However, it's easier said than done. An example of a marketing campaign that was spread via word-of-mouth was the marketing campaign for the film Slumdog Millionaire which is a film about a poor orphan from Mumbai India's slums who is a candidate for winning millions.
Influencers: Persons who are copied for wearing or embracing a particular fashion or trend. Taste makers are often known as trend setters.
Street teams: This term is used to describe a group of often young people between the ages of 15-25 years old, who travel up and down usually city streets actively promoting the product or service they are paid to market.
Membership organizations: Trade and other forms of professional associations, unions, special interest groups and work related clubs that one can join.
Community: The geographic, psychographic as well as online neighborhood in which your venture operates on a regular basis.
Virtual: Pertaining to your image appearing in a perceived manner, live, somewhere other then where you actually are currently located. The image would appear via a digital format such as through a web camera, simulated artificial intelligent agent and or three dimensional image such as a hologram image.
Suppliers: Companies that provide valuable resources to your new business are true suppliers.
Vendors: Typically the valuable resources are purchased from commercial resources known as vendors.
Consumers: These are people who buy your product or service.
Employees: These are individuals that work directly for you and are on your pay roll.
Read on: Several subsequent chapters discuss the importance of stakeholders further.
Blog Back 5: Stakeholder
Blog Back: Decide how you want to “take aim” carefully here. Who will be on your Startup Stakeholder Arrow? Brainstorm ideas for who specifically you would aim to have for your Startup Stakeholder Arrow. Be sure to include exact names of businesses and people and titles for this list. Try to utilize all the aspects mentioned in the provided categories of the “Startup Stakeholder Arrow”.
Stakeholder Arrow list.
Ethics: the authentic rim on the wheel
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcewill@cnx.org.
Editor: Molly Lavik (Vatel International Business School Los Angeles, USA)
Reviewer: Debbi D Brock (Berea College, USA)
Ethics: the authentic rim on the wheel
Ethics refers to the “heart and soul” of the activities you engage in while starting your business. How authentic and truthful you are during the startup phase will set the stage for the future ethical threshold of your new venture. As the founder and chief visionary behind the concept you are bringing to market, it is your responsibility to create the values and company culture that will be your business. Once a company culture is set, it is virtually impossible to alter the path that you have set for your new venture to follow. One way to try to ensure the ethical standards of your company is to first make sure that you have a good moral compass.
Your “moral compass” is the ethical stance you take on decisions and actions with your startup.
Here are some questions to consider when developing your own moral compass:
e What will the new venture’s code of ethics state?
¢ How will I make decisions for the startup that will limit my revenue potential but will ultimately be the correct action to take legally and ethically?
e What can I do to ensure that the people I hire have good values?
¢ Who will I go to for advice when I have a moral/ethical dilemma?
e Will I be capable of following the advice that I receive for taking the right ethical action?
¢ How will I know what is ethical and what is not?
e What processes will I put in place to make sure that my staff and the stakeholders I associate the startup with are acting ethically at all times?
e What will I do if a staff member or key stakeholder I’m associating with violates my new venture’s code of ethics?
e Ina crisis how will I communicate to my stakeholders the situation in the most ethical manner possible?
e How often will I cross check that I’m following my new venture’s code of ethics?
e What seminars, classes and guidance can I find to make sure I’m acting ethically when running the startup?
e What people can I go to in order to gain a role model/mentor for acting ethically with my startup?
e If I end up doing something that was unethical what will be my process to correct the situation and to communicate the situation to my stakeholders?
e Will I listen to my gut if I have a strange ethical reaction to someone or something?
e Is there anything else I should ask myself to develop my moral compass?
It turns out in business that self-awareness of one's action is a key component to understanding how to develop an ethical moral compass. Additionally, the translation of an entrepreneur’s moral compass into the development of a new venture leads to the establishment of the businesses’ company culture. The “company culture” is the values you decide to instill in the new venture.
Making good: elements of a values-based company culture
e Provide a safe work place and clean work environment. e Pay fair wages to all employees.
Provide benefits of some kind for employees that may include health insurance, dental insurance, vision insurance, a retirement investment plan, a pension of partial salary to be paid once an employee retires, and reimbursement for continuous learning.
Host employee appreciation events.
Be respectful to all employees.
Treat all stakeholders with respect and fairness.
Have a suggestion box or method where by employees and stakeholders can make suggestions that you review and consider.
Be a good corporate citizen by supporting some NGO/non-profit entities either by paying your employees to volunteer for these named causes or making cash donations or sponsorships to financially help support these organizations. This type of activity is known as CSR (Corporate Social Responsibility.) An example of a company that has been a good corporate citizen and routinely practices CSR is Grupo Bimbo which, according to the company’s website, was established in 1945 and is considered one of the most important bakeries in the world. In 2007, Grupo Bimbo’s net sales amounted to $ 6.7 billion dollars. In keeping with the company’s social responsibility, Grupo Bimbo participates in important community projects such as the reforestation of protected natural areas in Mexico as well as in a series of different projects for community welfare. You can read all about Grupo Bimbo’s Social Responsibility work in health, commitment to the environment, commitment to associates, and commitment to society at: http://www.grupobimbo.com/display.php?section=6 [footnote]
Grupo Bimbo, “Social Responsibility,”
December 28, 2009).
Adopt a triple bottom line philosophy. “Triple bottom line” means your company cares equally not only about making a profit but also about taking care of the people associated with your company and conducting business in a way that is good for sustaining a healthy environment for the planet. So to summarize, the triple bottom line philosophy means you care equally about people, planet and profits. Develop sustainable business practices. One who cares about the environment of his business goes to the trouble and expense to make
sure that he:
o has a recycling program for not only garbage but also old electronic devices and toxic waste disposal from batteries and printers.
o utilizes office cleaning supplies that are environmentally safe and don’t outgas. “Outgassing” is a term that refers to indoor air quality and describes the slow release of gas from a manufactured material such as furniture or carpets. Often the term is used to describe the potentially unhealthful attributes of a newly manufactured material as this gas is released indoors.
© carries out office remodeling and construction in a safe for the environment fashion by using low VOC, (“Volatile organic compounds (VOCs) are emitted as gases from certain solids or liquids. VOCs include a variety of chemicals, some of which may have short- and long-term adverse health effects.”)[ footnote], paints that do not out gas as well as insulation made from recycled materials.
U.S. Environmental Protection Agency, “Indoor Air Quality: An Introduction to Indoor Air Quality: Organic Cases (Volatile (Accessed January 16, 2009).
© replaces company light bulbs and lighting fixtures with energy efficient light bulbs.
© produces marketing materials that use soy-based ink and are printed on recycled paper stock. He uses the recycled logo mark on materials to communicate to stakeholders that he is concerned with sustaining the environment.
°o works with vendors, suppliers and all of his stakeholders that support environmental protection tactics.
© conserves energy and resources whenever possible. Moving to a four day a week, ten hour a day schedule can by way of example conserve energy and ultimately "“cut kilowatts to create a slender gas and electric bill”."
o rewards employees for traveling to and from work in sustainable ways such as walking, riding a bicycle, taking public transportation and when appropriate car-pooling.
o if applicable, purchases company vehicles that are electric or electric hybrids.
o stays current with environmental literature to keep employee’s knowledge base strong on conserving energy.
Going green on a shoe string
You may be wondering what you are going to do take the ethical stance on your company’s proactive sustainability plans to protect the environment when you are in the startup phase of your venture. It happens that doing the right thing for the environment is not just good for the environment but it also can be profitable no matter what your socio-economic state is today with your business. The recommended energy-saving tactics listed above will help you save money on your electric bill. By operating a sustainably- focused company you will be generating a growing amount of good will for your venture. And good will is something you can take to the bank! “Goodwill” is the difference between what your company is worth and what you are actually able to sell your venture for in the market place. The more goodwill you generate the higher value of your company in comparison to your competition. Some of the most environmentally conscious people in the world live in severely economically-challenged neighborhoods. Do not let your socio-economic status challenge the entrepreneurial ethics behind your startup. The goodwill you are generating from taking care of the environment could potentially come back to you in the form of good karma!
Read on: You’|! find more discussion of a socially responsible organization in [link].
Blog Back 6: Moral Compass
Blog back: Write a draft of your new venture’s code of ethics and a description of your moral compasses’ stances including what sustainable practices your venture will adopt to go green and have a triple bottom line focus.
ethics, description of your moral compasses’ stances and green sustainability practices.
Operations: the logistical rim on the wheel
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editor: Molly Lavik (Vatel International Business School Los Angeles, USA)
Reviewer: Debbi D Brock (Berea College, USA)
The operations of your business are the tactics and processes you implement to run your business.
Water your plants: operations hydrate your startup
Operations in a startup begin with the composition of a business plan. A new venture without a business plan is like a car without an engine; it exists but cannot get anywhere. In fact, researching and drafting the new venture’s business plan is probably the most important and necessary business practice you will ever under take. Business plans are usually written to obtain financing for a new venture. However, the business document and planning process provides a much more important function. This document will be your road map for getting your venture started. The findings of your research contained in your business plan can tell you from the beginning with pretty good certainty if your new business has a real chance of being successful financially and sustainable in the long run.
Traditional sections contained in a business plan:
¢ Company Description gives a background to the history of your Startup and explains what your venture will do.
e Statement of Mission or Mantra is a short phrase that explains the purpose of your new venture.
e Products and or Services describe what you plan to sell.
e Target Markets elaborate on whom you plan to sell to.
e Marketing Strategy explains what unique maneuvers your venture will under-take to accomplish the businesses goals.
¢ Competitive Analysis documents who your main competitors are in the market place.
e Management Teams are the names, titles and backgrounds of the people who will lead your venture to success.
e Operations for Investors explains what tactics you will undertake to finance the venture and the exit strategy you plan to utilize for the initial investors to make a profit on their investment.
e Financials document the forecasted sales and expenses for the first five years of the new venture. The financials should be accompanied by a detailed assumption log which summarizes where the numbers entered in your financial spreadsheets originally came from. Most investors want to see your financial documents include balance sheets, cash flows, income statements and key ratios such is when you anticipate breaking even.
e Long-term Goals explain what you hope to eventually accomplish with the new venture.
e Executive Summary which goes at the beginning of your business plan but is often written last should contain a brief summary of each of the above mentioned business plan sections. Executive summaries should be limited to two or less pages. The Executive Summary is often the most read portion of your business plan so it’s important to write and re-write this section until it’s absolutely perfect. Some entrepreneurs recommend that you draft the executive summary first and use this document as a planning document to cross check what you need in order to complete the business plan.
After you have completed drafting your new venture’s business plan it may be time to establish the legal entity of your business. Check with your local government office to get directed to the rules and regulations and processes you need to follow in order to properly establish your business’s legal entity
Some of the most universal company establishments are:
¢ sole proprietor
e private limited company e state-owned enterprise e public-limited company « NGO
e corporations
If you can get the resources from family and friends to pay for an attorney to help you establish your business legal entity you may lessen some of the risks associated with starting a new venture. The type of business entity you form will more than likely impact the way in which you pay taxes on your products and services and file your country’s income tax filing. The definitions for the different forms of company establishments vary from country to country. You will want to check with the portion of your government that grants company established entities for clarification
With a draft business plan in hand and your legal company business entity established it’s time to fully map out the operations/processes you plan to utilize to implement your business plan. It’s highly recommend that you make a Gantt chart to stay organized with the correct sequence and timing of each business activity.
You can use Microsoft® Excel and setup columns that list:
° tasks
e person(s) assigned to complete tasks
e dates that tasks must be completed by as well as proper task sequence
e an area to check off when a task has been effectively completed
¢ acomment section to keep a historic list of reactions to the considered tasks
e and given your unique plans, you may choose to have additional columns.
It is highly recommended that you post your new venture’s Operations Gantt Chart on a wall in a visible location so that as many people as possible have access to this information. This will allow others to make updates as well as understand what you are working on when they are considering interrupting you during the day.
Keep an open mind as you implement your operational plans for the startup. Remain flexible to continuous updates. Remember a startup is an evolving operational process that will need fine turning along the way.
Read on: Operations is the subject of [link]
New product: the tangible rim on the wheel
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editor: Molly Lavik (Vatel International Business School Los Angeles, USA)
Reviewer: Debbi D Brock (Berea College, USA)
New product: the tangible rim on the wheel
The new product can be a physical product and or a service offering. Developing a new product is an operational task that goes “above and beyond the call of duty” of utilizing the Operations Gantt chart described in the previous Operations section. Instead, we are recommending that you create a Process Mapping Guide in order to effectively develop your new product offerings. The following section describes in detail how to develop a Process Mapping Guide for your new product offerings
A new product bud is blooming: introducing the “New Venture Instructional Manual to Operational Excellence”
Example:
“New Venture Instructional Manual to Operational Excellence”
Start by process mapping all of the organization’s processes by creating a process log. Utilize a word processing software program which has auto shapes that features a “flowchart.” This will give you the software necessary for developing your process map. It does take a long time to
process map the functions within an organization, even a newly formulated venture. It’s time well spent. Process mapping guide There are many books and publications about process mapping and there are multiple ways to process map. We are going to focus here on showing you how to map the processes that make up new product development and marketing. We suggest the following: Assemble the people who are involved in the development and marketing of a new product at your organization. Brainstorm a list of the day-to-day steps that are taken to develop and market a new product. Review the list with your board, strategic alliance partners, mentors, vendors, and family members for items that may have been missed. Take the final list and divide it into two categories: repetitive processes and rare processes. Repetitive processes are steps that are taken repeatedly when developing and marketing a new product such as manufacturing the product. Rare processes occur infrequently. Analyze the rare processes list to see if any of the items mentioned can be combined with or woven into the repetitive processes. Rare processes can drain resources and are often not budgeted for. If you can combine a rare process with a repetitive process, you have taken a valuable step toward improving the operational excellence of your business. Make a flowchart of the processes within your organization from the list that was prepared and fine-tuned. This is where you take what might be explained in several paragraphs of text and drill it down to several flowchart icons. See [link]. Process Mapping Diagram
Exhibit
Prepare for Naming
Brainstorm
Company Names with All Stakeholders
Is the Name Ideal?
Document the Comments Made on Potential Names
Evaluate Finalize the Name Company
Name
The Process Mapping Diagram was developed by Molly Lavik, October 6, 2002
There is a growing trend for corporations to organize their management systems by processes instead of products. Large and mid-size corporations are making this shift to achieve cost savings.
Once you have completed your process log you must repeat the analysis phase. Gather your resident experts as well as some new mentors and outside board members to analyze the firm’s processes. Look for current processes that could be streamlined.
Because areas to streamline are difficult to see, keep re-examining what has been documented in the process log. Upon exhaustive examination of every possible streamlined scenario, the solution to achieving operational excellence will come into focus. Stay open and flexible to these new ideas. Log the new process innovations. Embrace the new processes and apply them throughout the organization with the committed support of top
management. This can be the most challenging step and requires a change Management campaign.
A change management campaign is the internal communication campaign that is targeted at a venture’s employees regarding a shift in the way a business is managed. This means you have to take a hands-on role in communicating the changes throughout the organization, making sure that everyone understands the new game plan, and why it is necessary. Inevitably, some won’t be willing to go along with the new program and you may need to help them find employment elsewhere. One negative person can delay the whole group’s transformation.”[ footnote |
“Process Mapping Guide” text and “Process Mapping” Image reprinted with permission from Mentorography, Inc. © 2008. All Rights Reserved. Entrepreneurial Marketing; Real Stories and Survival Strategies by Molly Lavik and Bruce Buskirk, Module on Savvy Strategies for Marketing New Products, pages 188-190.
Source: “Process Mapping Guide” text and “Process Mapping” Image reprinted with permission from Mentorography, Inc. © 2008. All Rights Reserved. Entrepreneurial Marketing; Real Stories and Survival Strategies by Molly Lavik and Bruce Buskirk, Module on Savvy Strategies for Marketing New Products, pages 188-190.
After your new product bud has bloomed through the implementation of a process mapping guide you are ready to launch your new product offering into the market place. You should consider planning a New Product Launch Event.
Read on: Adding Products or Services is discussed further in [link].
Let the fruits of your labor blossom: the new product/service launch event plan
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editor: Molly Lavik (Vatel International Business School Los Angeles, USA)
Reviewer: Debbi D Brock (Berea College, USA)
Let the fruits of your labor blossom: the new product/service launch event plan
Exhibit
Sunny day
Image created by: Taissia Belozerova, Graphic Designer, Artist, MBA Candidate at Pepperdine University Class of 2009
Your new business may be built around a product or service or both as we earlier discussed. We will discuss, by way of example, a new product launch event but it’s worth noting that the same general principles apply whether you are planning a new product or new service launch event.
Events organized around a new product/service launch are typically postponed or cancelled because the new product/service does not turn out as anticipated. Build this scenario into any planned event so that you can recoup some of the costs if the event needs to be cancelled.
Example:
“Checklist for a New Product Launch Event
Is the new product going to be fully functional in time for the event? What is your backup plan?
Have you assembled a well-connected board of advisers to help with the production of the event?
Have you determined your budget for the new product launch event? Is there anyone you can bring in to cosponsor the event to help defray the cost?
Have you hired someone to be responsible for the myriad of details that must come together in order for a new product launch event to be called a success?
Have you prepared a detailed spreadsheet, with deadlines, of all the items that need to take place for the event to come together and assigned each item to a responsible person?
Have you devised the best forum for the new product launch event? Is the event scheduled during an industry tradeshow where every- one will already be assembled and you can easily fold your event into the bigger show, leveraging all the resources available at that event?
Have you outlined how you are going to communicate your new product message at the launch event? (There is nothing worse than producing an expensive new product launch event that everyone may enjoy but attendees leave not having any idea what brand was being promoted.)
Have you invited your targeted press to cover the new product event?
Do you have a contingency plan if few people respond to your invitation to the new product launch event? Do you have takeaway logo items, commonly referred to as premiums, for attendees so they can be reminded of the new product?
Have you decided how you will measure and evaluate your brand building strategy?” [footnote |
“New Product Launch Event Plan” text reprinted with permission from Mentorography, Inc. © 2008. All Rights Reserved. Entrepreneurial Marketing; Real Stories and Survival Strategies by Molly Lavik and Bruce Buskirk, Module on Savvy Strategies for Marketing New Products, pages 191-192.
Source: “New Product Launch Event Plan” text reprinted with permission from Mentorography, Inc. © 2008. All Rights Reserved. Entrepreneurial Marketing; Real Stories and Survival Strategies by Molly Lavik and Bruce Buskirk, Module on Savvy Strategies for Marketing New Products, pages USMS 2
Read on: Launching your business is the topic of [link], [link], [link], and [link].
Blog Back 7: Launch Plan
Blog back: Develop a plan for your new product launch. Include the name and description of the venue you plan to showcase your new product as well as a detailed budget of the researched expenses and a forecast of the media coverage you hope to gain during the launch event.
plan.
Public relations: the sensational rim on the wheel
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editor: Molly Lavik (Vatel International Business School Los Angeles, USA)
Reviewer: Debbi D Brock (Berea College, USA)
Public relations: the sensational rim on the wheel
Public relations are the activities one engages in to generate excitement about your new venture so that editorial coverage will occur. Editorial coverage is thought to be much more valuable then advertising in media because people perceive editorial coverage as authentic and of interest. Startups need to generate a great deal of excitement known as “buzz” in order to make the case for media coverage. Because entrepreneurs normally don’t have much if any marketing budgets to initially launch his or her new venture, relying on public relations coverage becomes essential for the success of a new venture.
In order to increase your chances for coverage of the new venture you will want to make sure that communications with the media include information about your new venture that is written in what is known as a “tight” manner including, if possible, the following attributes:
¢ concise/brief summary
e straight-forward
e timely and quite current
e a first of its kind if possible e attention-grabbing
e authentic and truthful
¢ tying-in if possible with an emerging trend e remarkable
e and absolutely accurate
The public relations practitioner’s tool kit
Press releases: Newsworthy text regarding the “Who, What, Where, and When” of the story you are pitching to the media.
Video News Releases (VNRs): Usually responsible for coordinating the video production of news announcements known as VNRs which are sent to television/broadcasting stations with the intention of gaining news coverage
Newswire services: The Public Relations practitioner works with a company known as a newswire service to disseminate news announcements to targeted media. One example is CSRwire service found at: http://www.csrwire.com which specializes in disseminating news releases from corporate socially responsible companies often engaged in many CSR pursuits. [footnote |
CSRwire, “Home Page,” http://www.csrwire.com (Accessed on August 15, 2008).
News agencies: The public relations practitioner is in direct contact with news services that cover large batches of news happenings in specific regions. MEMERCOPRESS is an example of a news agency. According to this news agency’s website, "MERCOPRESS is a news agency concentrating on Mercosur countries which operates from Montevideo, Uruguay and includes in its area of influence the South Atlantic and insular territories."[footnote] For more information on MERCOPRESS visit: http://www.mercopress.com/about.do.
MERCOPRESS, “About MERCOPRESS, http://www.mercopress.com/about.do (Accessed January 2, 2009).
Media databases: Contain detailed information on how to reach media contacts. The more expansive and current the media database, the more
likely you are to achieve optimum press coverage in targeted publications.
Style guides: Provide guidelines on the proper formatting of information to include when quoting from another source and attributing in a citation the quoted source.
Extensive Rolodex: Public relations practitioners are major networkers with vast contacts with the media as well as key stakeholders.
Timelines: Successful public relations practitioners are known for keeping long timelines of checklists to make sure events and campaigns are carried out flawlessly in order to achieve the maximum amount of effective media coverage
Archives: The public relations practitioner usually is the one to maintain the press clipping files documenting media coverage as well as the video and image files. Images are sometimes used by the media so keeping well- organized archive files is essential to any marketing campaign.
Because public relations professionals are dedicated to the tasks surrounding disseminating, documenting and archiving news coverage, these practitioners are usually a great resource to any startup.
Blog Back 8: PR Plan
Blog Back: Write down a list of public relations plans you have for your new venture. Include what you will do to get publicity for your startup. What news sources will you target? Be specific by naming newspapers, magazines, newsletters. Leaflets, signage and other media sources that you plan to target.
Mentor insights: the “Where the Rubber Meets the Road” spokes on the wheel
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dewill@cnx.org.
Editor: Molly Lavik (Vatel International Business School Los Angeles, USA)
Reviewer: Debbi D Brock (Berea College, USA)
Mentor insights: the “Where the Rubber Meets the Road” spokes on the wheel
Mentor insights are the lessons learned by the protégé/mentee. Mentor insights are depicted as spokes on the wheel because they are the glue that effectively holds together everything else. Understanding your mentor’s driving philosophies is essential if you want to gain the wisdom that your mentors possess. There is a tremendous amount you can learn from a mentor’s successes as well as their setbacks. Mentors come literally in all “styles, shapes and sizes”. When you are away from home be sure to keep a “look out” for people who might have some business wisdom to share with you.
Places you can go to find mentors potentially ideal for coaching you with your startups include:
e faculty at schools
e libraries
e seminars/conferences/workshops e town meetings
e management from other businesses
e classmates
e family
e friends
¢ co-workers
e religious institutions e public markets
e neighbors
e near-by communities e re-acquainting yourself with people you haven’t kept in contact with e entrepreneurs
e micro-loan recipients
To keep track of the insights that you pick up from mentors try keeping a journal of the lessons you are learning that are applicable to your startup. Mentor insights can come from a business executive or role model who you want to emulate. Mentor insights can also come from observations of others.
I was fortunate to meet a student named Jay Milbrandt while teaching a Social Entrepreneurship course at Pepperdine University’s Graziadio School of Business and Management. Jay had recently traveled to Bangladesh and kept journals of his first-hand observations of meeting people who were prospering through micro-finance loans. I found these journal entries extremely inspirational and we hope you will as well. We encourage you to be on the alert for micro-finance opportunities in your country as a proven method for helping those that are less fortunate than yourselves. By reading these journal excerpts you can experience how those less fortunate are finding success no matter what their economic situation. Micro-financed loans are imparting a great deal of opportunity to those that really need it and transforming the economies of developing countries in remarkable ways! The following are excerpts from the journal of Jay Milbrandt.
Example: Jay Milbrandt’s Journal Entries from Bangladesh: Not Just Statistics
The shear numbers are impressive. 1.2 billion people throughout the world live in extreme poverty. Accordingly, extreme poverty is defined by the World Bank as living below $1 per day purchasing power parity threshold. The United Nations set the Millennium Challenge goal of eliminating extreme poverty by the year 2025. In Bangladesh, at least, it appears to be well on the way. It’s easy to get lost in the numbers. But, when you travel through Bangladesh meeting the microcredit borrowers, you realize that behind every number is a life—real people and real families. Suddenly, the Statistics come alive.
I don’t know what it’s like to live on less than $1 per day. I have, however, met enough people to garner some details about what such a life is like. Simply put, you consume in proportion to what you grow; when you cannot afford more, you beg.
Meet Meera. She used to live on less than $1 per day. Now, she’s a twenty- six year old business owner with two daughters, eleven and seven years old. Her husband walked out on her a few years ago, leaving her to fend for herself. In the culture of Bangladesh, she was in a very tough spot. To give birth to only daughters and no sons is unlucky. Likewise, for a husband to walkout on his wife is looked down upon even more. In spite of this, she became one of the most successful women in her village. Through microcredit, she started and built a large poultry farm, raising thousands of chickens and selling them to market. After showing us her farm, she invited us into her home, which was considered a nice home by village standards—four walls, two rooms, a cement floor, and metal roof. Her home was also financed through a Grameen| footnote] microcredit home loan. And, best of all, she told us how happy she was and how microcredit changed her life.
Grameen Bank: Banking for the Poor, “Home Page,” http://www.grameen- info.org/ (Accessed on December 10, 2007).
Although Meera holds the distinction as the first microcredit customer I met, that’s the only number associated with her.[ footnote]
Jay Milbrandt’s Journal Entries from Bangladesh, Pepperdine University JD/MBA alumni, Reprinted with Permission.
Example:
Jay Milbrandt’s Journal Entries from Bangladesh: Why I Have Hope “T’ve got this feeling of hopelessness,” I admit to a traveling companion. I’m here to see the hope that microcredit has brought, but our taxi has not even left Dhaka yet and I’m surrounded by the most abject poverty I have ever seen.
I’m on sensory overload. There are so many people that the country seems ready to burst at the seams. More than 140 million people are packed into this country, approximately the size of Iowa. In Dhaka, garbage is everywhere—in the streets, in the ditches. Its obvious that the city does not possess the infrastructure to service its 15 million inhabitants. Judging by the integrity of the city streets, which appear to have been paved once left alone, I’m not the least bit surprised. If the heap of garbage is fresh, a few people would be rummaging through it—looking for a meal, I suspect. If the garbage was old, it served as a bed. Audibly, Dhaka pulses with the sound of non-stop horns—there need be no reason to use it. Dhaka is also a city of smells. Every street has a different smell, many of which I find both unfamiliar and unappealing.
The streets are a labyrinth—if I were lost, I could never find my way back. We round a corner and roll past a lot of wood and metal. A salvage yard maybe? “Those are the slums of Dhaka,” our guide explains. Our taxi comes to a stop, waiting for a train to pass. After a few seconds, there’s a bang on the window. It’s a young boy, maybe seven years old, begging for money. He’s yelling in Bengali and motioning to his mouth with his hand. “In Dhaka, people work together in an organized system of begging,” my guide explains. He cracks the window and tells the child to leave. We start moving again and the child runs along until he can no longer keep pace. Little did I know at this point, that over the succeeding two months, I would meet some of the most disadvantaged people in the world: the poorest-of-the-poor, victims of trafficking, prostituted women, refugees, and the illiterate. Despite their perilous circumstances, I’m filled with more hope than ever before. Why? The positive, successful change I would come to witness—and the great potential for continued change.
My hopelessness, however, would be relieved. What I saw in Dhaka was probably a piece of history for Bangladesh... Due to current laws, Grameen Bank is restricted from operating in urban areas.
I have hope because of Bangladesh. I wish I could have traveled here 20 years ago to experience the change. From the descriptions of the people I
met, the change has been Bangladesh—a model for global turn around; the man sitting next to me on the airplane was convinced that, given ten years and right national leadership, the country could shine like Malaysia. [footnote |
Ibid
Example:
Jay Milbrandt’s Journal Entries from Bangladesh: Moving the Mountains of Poverty
How come I have never heard a sermon preached on the elimination of poverty? Christians frequently talk about giving to those in need or feeding the hungry, but I have yet to hear a sermon calling for a solution. Here is one to start with, I would like to call it “Microcredit and the Mustard Beedig
One evening just before dusk, we were riding a rickshaw down a narrow road in the village of Salanga. Suddenly, our guide stopped the driver, had him turn the rickshaw around, and pull up at a small metal building. Inside, the building was dimly lit with an organic smell and the hum of a large engine. We met with the owner, Shameen, who had financed his small business through a Grameen microloan. Before Grameen, he had nothing —barely enough to feed his family—if that year’s rice harvest was plentiful. After founding and growing his business through Grameen loans, he started generating income on his own, built a better house, and could afford to send his kids to school. And his business? Processing mustard seeds.
Matthew 17:20 [from The New International Version, NIV, which is the English translation of the Christian Bible] tells us that with the faith the size of a mustard seed, we can tell the mountains to move. I took this verse literally with a good dose of skepticism until this day. Here was a mountain right in front of us: More than 1 billion people clenched in the fist of poverty. In Bangladesh and throughout the world, millions of people are putting a lot of faith in tiny loans—Shameen’s faith, ironically, happened to be a mustard seed.
Soon, the entire building was flooded with local people wanting to gaze at the foreigners. Each of these people was a microcredit borrower. None of
them in the chains of poverty. This held true for practically everyone in the entire village, followed by millions more throughout Bangladesh. Microcredit was moving the mountain of poverty before my very eyes. Deuteronomy 15:7-8 says “If there is a poor man among you... do not be ... tightfisted. ...Rather be openhanded and freely lend him whatever he needs.” Is it coincidence that the word “lend” is used? I believe microcredit is a sermon that every church should hear. I believe that if Christians were to join the Muslims and Hindus of Bangladesh in the mustard seed of microcredit, the mountain would move much faster.[ footnote |
Ibid
Example:
Jay Milbrandt’s Journal Entries from Bangladesh: What Third World?
The man staring at me has no shoes or shirt. This seems like the perfect opportunity to capture the face of the human condition in rural Bangladesh. As I pull out my camera he mirrors me with none other than a camera phone. I’m photographing him photographing me—something seems wrong here.
Earlier in the day, I spontaneously walked out into a rice field to visit the field workers. They were excited to show a foreigner how fast they cut, then give a brief rice cutting lesson. I just about took a Bengali man’s leg off—the sickle blade is sharper than it looks. They cut a few sheaths of rice, then tie the bundle off with one of the stalks. The whole process takes but a few seconds. Rice harvesting has been done this way here for hundreds of year. Occasionally, I would see a billboard for a tractor or modern agricultural convenience, but I never saw any of them in action. Third world technology transfer is an interesting phenomenon. Is a cell phone really what they need? How about drip irrigation instead? Or maybe a rice harvester?
Grameen created an interesting microenterprise program throughout Bangladesh with village “phone ladies.” A woman in each village is allowed to purchase a cell phone through a Grameen loan. The “phone ladies” then sell use of their cell phone to other villagers. The result is that the “phone ladies” have a very profitable business and villages that
previously had no phone line at all now have a modern method of communication. As traveling is difficult for the poor of Bangladesh, the villagers no longer have to leave if they need to communicate with a relative in another village or ask a doctor a question. In other villages, the profitability of “phone ladies” has diminished because a majority of villagers now own a personal cell phone.
It’s surprising how someone may not have running water, but own a nicer cell phone than I do.[footnote |
Ibid
Blog Back 9: Journal
Blog back: Keep a journal of the lessons learned from your own startup time mentor insights.
journal entries that is particularly applicable to someone on an entrepreneurial journey.
With the Mentor Insights providing strong spokes; this completes the description and elaboration of the visual model of the Business Eco-system Wheel.
BUSINESS ECO-SYSTEM WHEEL
Exhibit
Striking gold
Image created by: Taissia Belozerova, Graphic Designer, Artist, MBA Candidate at Pepperdine University Class of 2009
Early-stage entrepreneurs can rejoice when they invest the time and energy to build well thought out Business Eco-systems. These hard-working, strategic-thinking entrepreneurs increase the chances of creating a startup that has a real opportunity of potentially striking gold at the end of the rainbow!
About this author and acknowledgements
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editor: Molly Lavik (Vatel International Business School Los Angeles, USA)
Reviewer: Debbi D Brock (Berea College, USA)
About this author and acknowledgements:
Editor and Author: Molly Lavik, Founder, Mentorography, Inc. & StartupTime Coach, Molly.Lavik@StartupTime.com, Professor, Vatel International Business School. Very special thanks to the Academic Reviewer: Debbi D Brock, William and Kay Moore Professor of Entrepreneurship and Management, Berea College. Special Thanks to Michael Tanenbaum, Kaushik Shirhatti, and Sumeet Malik my graduate assistants and my former students, Ann Shafer and Luiz Montoya from Pepperdine University’s Graziadio School of Business and Management who assisted by providing initial research on preliminary versions of this chapter. Special thanks to my former student Jay Milbrandt for providing his journal. Special thanks as well to Taissia Belozerova, Graphic Designer, Artist, MBA Candidate at Pepperdine University Class of 2009. Also, special thanks to Bruce D Buskirk, PhD, Professor of Marketing, Pepperdine University’s Graziadio School of Business and Management who co-authored the gratefully acknowledged and appreciated excerpts provided by Mentorography, Inc. from Entrepreneurial Marketing: Real Stories and Survival Strategies. Additionally, special thanks to Estelle Holloway.
Introduction
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editor: Molly Lavik (Vatel International Business School Los Angeles, USA)
In this chapter we will explore what factors and characteristics are commonly found in an entrepreneurial mindset. These may be characteristics that you can strive to possess and emulate. Perhaps you may need to inherit from your parents a certain combination of entrepreneurial characteristics to become an entrepreneur or perhaps that has absolutely nothing to do with if you are destined to become an entrepreneur. Is an entrepreneur ultimately born or made? That question has no definite answer. We suggest you meet as many entrepreneurs as you can to see if this is how you want to spend your life; then decide if you want to train under these entrepreneurs as an apprentice. You control your own destiny and your life’s journey is your own so you decide!
Review:
In [link] we discussed the characteristics of an entrepreneur as possessing the following attributes:
Vision: Able to create and communicate an easily understandable mission for what the new venture does in order to successfully launch a new business. This is accomplished while inspiring others to join you in your new enterprise.
Creativity: Ability to inject imagination and uniqueness into a new business venture. It takes skill and ingenuity to create a new venture equipped with strategies to outsmart the competition.
Focus: Able to maintain the vision of the company with unwavering diligence. It's very easy to get sidetracked especially if you find it necessary to evolve the original vision. Ironically, we have encountered many successful entrepreneurs who get bored easily...
Passion: Desiring to succeed under your own steam [initiative] on a business venture...
Drive: Possessing intrinsic energy to accomplish the business goal even in the face of adversity.
Perseverance: Able to keep going even when faced with seemingly insurmountable obstacles.
Opportunistic Nature: Sees the possibilities even before they exist. Can take advantage of an upcoming trend or unite unrelated processes to create a unique business venture...
Problem Solving Ability: Thrives on coming up with solutions to complex challenges...
Self-discipline: Able to be organized and regimented in pursuit of a successful business venture.
Frugality: Knows how to stretch every cent so that expenditures are as low as possible.
Empathy: Able to put yourself in another’s shoes and therefore able to show sensitivity and understanding of what others are communicating in the start up environment...
Social Responsibility: Ethics, caring and humanitarianism are characteristics that are commonly found in today’s entrepreneurs...
Spirituality: We have found that successful entrepreneurs have often devoted time to spirituality development. Meditation and positive affirmations are two common examples of spirituality.
Good Timing: Able to identify a market opportunity and know when it is the optimum time to launch a new venture or expansion of an existing enterprise.
Luck: Can a person be predisposed to be lucky: Is luck a human behavior or a karmic universal predisposition?[ footnote |
“The Mindset of an Entrepreneur” is reprinted and adapted with permission from Mentorography, Inc. © 2008. All Rights Reserved. Entrepreneurial Marketing; Real Stories and Survival Strategies by Molly Lavik and Bruce Buskirk, introduction pages xxviii-xxx.
In this chapter we begin by introducing you to Costa Roussos, a young entrepreneur from the country of Cypress who is creating a global music empire. We will share his story through an interview that Molly Lavik conducted with him and look at his entrepreneurial tendencies and attributes. Then it is your turn to take the Entrepreneur Assessment Survey which can be used as one indication of measuring your own entrepreneurial mindset. However, it should be noted that a true entrepreneur would never rely on a survey to determine how worthy or ready they are to become an entrepreneur. A true entrepreneur would simply begin implementing his or her start up idea.
True story: Costa Roussos was one of my students several years ago and immediately I noticed something quite different from Costa and that was his focus on starting a music company. It seems to take a certain type of person to start a new venture because you do not have the security and structure of a more established company not to mention the challenges of inspiring others to join your unproven venture and to help you meet their deadlines associated with a new business. Do you have the type of mindset that Costa seems to possess to get him through the many setbacks and challenges that faced him or any entrepreneur in the making? If you are not sure do not worry. When the timing seems right you will know if an entrepreneurial journey is your destiny. And you might even become a hero to someone or maybe even an entire group of people such as how you will soon read Costa is becoming a hero to the independent music artist and music listening enthusiast. This is your future we are talking about and it’s your decision if you have a hero’s journey ahead!
As you read Costa’s story pay particular attention to the characteristics described as his entrepreneurial mindset. Do you possess some of the same characteristics? Read Costa’s story to find out.
http://www.startuptime.com/costamusicus.html
Do you possess any of the entrepreneurial mindset characteristics that Costa has?
Blog Back 10: Your Mindset
entrepreneurial mindset characteristics.
Still not sure if you are an entrepreneur or if you may some day have your own hero’s journey ahead? Try taking the Entrepreneur Assessment Survey but remember, this does not mean if you have the tendency or not, again only you get to decide if you want to go on your own entrepreneurial journey. No one or no survey can tell you that.
Entrepreneur assessment survey
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editor: Molly Lavik (Vatel International Business School Los Angeles, USA)
Entrepreneur assessment survey
Directions: Please circle your personal response to each question. Please be sure to go with the answer that is your first choice if and when you are in doubt of how to respond.
1. Do you have an issue that is a major driving force behind your professional goals in life? Yes Undecided No
2. Would you describe yourself as the type of person who gives up easily when faced with adversity? Yes Undecided No
3. Do people who have known you since childhood describe you as the type of person who gives up easily when faced with adversity? Yes Undecided No
4. Have you been successful in the past convincing others to help you to accomplish your goals? Yes Undecided No
5. Do you have a desire to make the world a better place that is a stronger goal for you then your desire to earn money? Yes Undecided No
6. Have you considered becoming an entrepreneur? Yes Undecided No
7. Have you spent a substantial amount of time in your life considering what type of legacy you would like to leave? Yes Undecided No 8. When trying to raise support for an idea, do you ever start by identifying people to form alliances with who may be sympathetic to your goal? Yes Undecided No 9. If you were busy with a deadline for work and or school would you miss completing this deadline on time because you gave your own new venture/start up/new product idea a higher priority? Yes Undecided No 10. Will you use your score on this test to ultimately help determine if you should become an entrepreneur? Yes Undecided No 11. How many of the entrepreneurial mindset characteristics do you possess? Give yourself 1 point for each of the characteristics you possess from the list below. Yes Undecided No
Total Score for characteristics:
Some key characteristics of an entrepreneurial mindset
In [link] some characteristics of an entrepreneurial mindset were shared; here are additional characteristics and or similar characteristics to also consider.
Mentor Method 2
Humanitarian Organizing movements that can take many forms Worth 1 including campaigns, drives, grassroots or net
Point Add 1 Point
Visionary Worth 1 Point
Add 1 Point
Values- centered Worth 1 Point
Add 1 Point
Change- oriented Worth 1 Point
Add 1 Point
Self-reliant Worth 1 Point
Add 1 Point
Persuasive Worth 1 Point
Add 1 Point
Hyper- focused Worth 1 Point
Add 1 Point
roots movements, lobbying, and/or crusades for the express purpose of providing altruistic or charitable support.
Possessing the ability to potentially define the future by making bold unsubstantiated predictions for new enterprises while utilizing a great deal of imagination and foresight in the process.
Demonstrating worthwhile qualities of leadership that are lawful, ethical, considerate, and honest in nature and intent.
Adopting a leadership style that attempts to transform the status quo by creating a new method, process or invention for accomplishing tasks.
Depending on yourself to develop solutions for the problem or challenge at hand.
Able to convince others that the new organizations’ mission and goals are viable and should be adopted and supported.
Maintaining uninterrupted attention and concentration directed at implementing the enterprise’s mission.
Passion Worth 1 Point
Add 1 Point
Energetic Worth 1 Point
Add 1 Point
Having a tremendous amount of enthusiasm and excitement over the mission and goals of the new organization.
Demonstrating an infinite amount of drive and an enterprising nature toward accomplishing an organization’s objectives.
When starting a new organization especially when Starting a social enterprise, it requires a great deal of energy and drive to accomplish all the objectives especially given that social enterprises usually require volunteer staff and unpaid staff for resourcefulness that goes far beyond the standard needs of a traditional, long-established company.
12. Ask someone who has known you since you were a child how many of the entrepreneurial mindset characteristics they think you possess? Give yourself 1 point for each of the characteristics they feel you
possess.
Total Score for characteristics:
Answer key
Answer key for entrepreneur assessment survey
Directions: Please circle your personal response to each question. Please be sure to go with the answer that is your first choice if and when you are in doubt of how to respond.
1. Do you have an issue that is a major driving force behind your professional goals in life?
Yes Undecided No
Score: Ten points for Yes, 0 points for Undecided and No.
Reason: One of the first steps toward creating a new company is to have a major reason or issue for your new venture's mission or goal.
. Would you describe yourself as the type of person who gives up easily when faced with adversity?
Yes Undecided No Score: Ten points for No and 0 points for Yes and Undecided.
Reason: You have to be able to continue through all the setbacks to be successful and ultimately enjoy being a social entrepreneur.
. Do people who have known you since childhood describe you as the type of person who gives up easily when faced with adversity?
Yes Undecided No Score: Ten points for No and 0 points for Undecided and Yes.
Reason: It typically takes a track record in life of dealing successfully with adversity to build up the confidence and credibility that comes with a No answer for this question.
. Have you been successful in the past convincing others to help you to accomplish your goals?
Yes Undecided No Score: Ten points for Yes and 0 points for Undecided and No.
Reason: New ventures do not have the funding to afford the staff to get work accomplished. Resourcefulness is the key to succeeding and one must possess the ability to attract and retain volunteers and non-paid experienced help at first to get the tasks completed.
. Do you have a desire to make the world a better place that is a stronger goal for you then your desire to earn money?
Yes Undecided No
Score: Ten points for Yes and 0 points for Undecided and No.
Reason: Entrepreneurs are driven by their need to create societal wealth vs self-wealth. This desire takes precedent and priority over other goals. This does not mean that someday you might not derive a financial bonanza for the work you have been doing associated with the start up. It just means that is not what drives you today.
. Have you considered becoming an entrepreneur?
Yes Undecided No Score: Ten points for Yes and 0 points for Undecided and No.
Reason: Even if it was a subconscious or passing thought, usually you have to have some propensity or interest toward becoming an entrepreneur for it to be your destiny.
. Have you spent a substantial amount of time in your life considering what type of legacy you would like to leave?
Yes Undecided No Score: Ten points for Yes and 0 points for Undecided and No.
Reason: Perhaps your legacy is something to be considered in later years. With that said it is never too soon to begin considering what type of footprint you may want to leave. If you have considered trying to leave a legacy of making the world a better place then you may a hero’s journey as your entrepreneurial path for future.
. When trying to raise support for an idea, do you ever start by identifying people to form alliances with whom maybe sympathetic to your goal?
Yes Undecided No Score: Ten points for Yes and 0 points for Undecided and No.
Reason: One of the best ways to increase your chances of being a successful entrepreneur is to enhance your credibility by forging
1A);
11.
12.
strategic alliances and partnerships with others.
. If you were busy with a deadline for work and or school would you
miss completing this deadline on time because you gave your own new venture/start/new product idea a higher priority?
Yes Undecided No Score: Ten points for No and 0 points for Yes or undecided.
Reason: This may appear to be a trick question. A values-centered leader would not sacrifice one important commitment for another even if it was to help a social enterprise. Part of starting a new company is demonstrating ethical and honest business leadership.
Will you use your score on this test to ultimately help determine if you should become an entrepreneur
Yes Undecided No Score: Ten points for No and 0 points for Yes and Undecided.
Reason: The truth of the matter is that if you are really meant to be an entrepreneur you do not need a test and or survey to tell you this. In fact; a true entrepreneur does not depend on others to make their decisions. Only you know your destiny; do not let anyone tell you what you can and can’t accomplish in life because statistically speaking they would not really know.
How many of the entrepreneurial mindset characteristics do you possess?Give yourself 1 point for each of the characteristics you possess.
Total Score for characteristics: The goal is to score a ten for this question. Many entrepreneurs embody these entrepreneurial mindset characteristics.
How many of the entrepreneurial mindset characteristics do you possess? Give yourself 1 point for each of the characteristics you possess.
Total Score for characteristics: The goal is once again to score a ten for this question as explained above. If it turns out that you have a very different score for your self-assessment of this question in comparison to what someone who has known you all your life then you need to come to an understanding why others perceive you differently then you perceive your own interests. Perhaps you are repressing or camouflaging your true interests or maybe you have changed. The reason for the difference isn’t as important as making sure you are aware of your own interests.
Score:
e A score of 120-110 may mean that you know that you want to become an entrepreneur and you should begin working out a strategic plan to make your goals a reality and to begin your own hero’s journey.
e A score of 109-90 may mean that you most likely want to become an entrepreneur and you should begin thinking of this possibility to give yourself a further self-assessment of your interests.
e A score of 89 or lower may mean that you probably are not going to be an entrepreneur but as mentioned before; do not let this assessment be the final or even partial determination; the choice is clearly your own to make.
Blog Back 11: Start-up Story
Blog back: Post a story or interview with an entrepreneur who possesses some of the entrepreneurial mindset characteristics you hope to develop in confidence in your own entrepreneurial mindset or hope to enhance or inspire further development there are resources and things you can do today to build your entrepreneurial mindset!
Entrepreneurial mindset enhancing activities
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editor: Molly Lavik (Vatel International Business School Los Angeles, USA)
Entrepreneurial mindset enhancing activities
e Set up a Google Alert for the key words: “entrepreneurial mindset” at http://www. google.com/alerts. A Google Alert is a query of key words and allows you to receive in your e-mail inbox a list of all the stories to be posted on the Internet that day associated with your key word. You can set the alert to come to you immediately, daily or weekly.
e Discuss with entrepreneurs what attributes they possess that make these founders particularly adept at starting new ventures. When you talk with these visionary individuals be on the “look out” for unique characteristics that they people possess.
e Take some time and consider today what you want your lasting legacy to be and who you will accomplish those goals. Keep a diary of this journey and try when possible to have journal entries about what type of entrepreneurial characteristics you are developing to help you achieve your legacy goals.
¢ Do not let others define your entrepreneurial journey! You know who you are and who you want to be. The “naysayers” will always be around to try to prevent you from starting a new venture. Learn to listen to your gut.
e Seek out educational programs and literature that will help you better develop your own entrepreneurial characteristics. Make a list of the attributes you do not yet possess and then develop a plan of action to
achieve adding these entrepreneurial characteristics to your own personality traits.
e Schedule time every day for 30 minutes to keep refining your entrepreneurial characteristics and figuring out how to enhance your entrepreneurial personality. Many people think that what you spend time thinking about will become ultimately your own reality.
e While each of you are from different countries and cultures there are some places that often will provide resources for first-time entrepreneurs.
These places include:
e Small business associations
e Banks, financial institutions, and micro-credit agencies
e Educational Facilities
e Business related NGOs
e Libraries
e Community Redevelopment Agencies
e Most family and friends for moral support
e The Internet when using the right search terms associated with developing and or enhancing your entrepreneurial mindset.
Now you are ready to go out and potentially create your own hero’s journey
Chapter summary
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editor: Molly Lavik (Vatel International Business School Los Angeles, USA)
In [link] titled, “The mind of the entrepreneur”, we reviewed the characteristics of an entrepreneurial mindset that were covered in Chapter 1, shared the story and entrepreneurial mindset attributes of Costa Roussos during his start up journey with Music.us followed by sharing with you the Entrepreneur Assessment Survey and answer key ending [link] with a list of entrepreneurial mindset enhancing activities so that you can begin embarking on your own hero’s journey.
Blog Back 12: Hero Post
Blog back: Post entries from your journal regarding your thoughts about your own journey. Then read what others have posted. Do you see anyone who you think is on his or her way toward becoming a hero? Post your thoughts and comments on entrepreneurial mindset characteristics at
Learning Objectives
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcewill@cnx.org.
Editors: Salvador Trevino and Carlos Ruy Martinez (ITESM, Monterrey Campus, Mexico)
Contributors: Carlos Alberto Alanis, Gaspar Rivera, Jorge Echeagaray, Jose de Jesus Montes, Juana Monica Garcia, Ramiro Robles, and Roberto Sanchez
e how to build and implement a successful business model
e understand the importance of a company to be market vs product oriented in a developing country
e how to identify consumers’ wants successfully
e understand Porter’s 5 forces of Industry Attractiveness
e how to perform a Market Research study
What is a business model?
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editors: Salvador Trevino and Carlos Ruy Martinez (ITESM, Monterrey Campus, Mexico)
Contributors: Carlos Alberto Alanis, Gaspar Rivera, Jorge Echeagaray, Jose de Jesus Montes, Juana Monica Garcia, Ramiro Robles, and Roberto Sanchez
Business models can be approached from two perspectives. A general perspective defines a business model as any type of conceptual framework explaining how to organize and evolve a business venture. On the other hand, specific circumstances guide business modeling. For instance, industries such as tourism, banking in the services sector, or automobile or shoe manufacturing demand specific models that take into account critical variables found within the industry’s specific environment.
One definition from the general perspective is provide by Alex Osterwalder:
"A business model is a conceptual tool that contains a set of elements and their relationships and allows expressing the business logic of a specific firm. It is a description of the value a company offers to one or several segments of customers and of the architecture of the firm and its network of partners for creating, marketing, and delivering this value and relationship capital, to generate profitable and sustainable revenue streams.” (Osterwalder 2005, http://business-model- design.blogspot.com/2005/11/what-is-business-model.html. Accessed November 25, 2007). "
Models are simplified representations of things in the real world. You are already familiar with many kinds of models. You have played with a model air plane or boat when you were a child. You may have seen models of buildings, dams, or other construction projects built by architects to show the sponsors of a project how a completed building will look after it is built. In the same way, a business model lets an entrepreneur try out different ways to put together the components of his or her business and evaluate various options before implementing the one that looks the best. This technique is especially important in today’s business environment, where technology gives business people so many more options than ever before.
Osterwalder goes on to say:
"“For managers and executives this means that they have a whole new range of ways to design their businesses, which results in innovative and competing business models in the same industries. Before it used to be sufficient to say in what industry you were for somebody to understand what your company was doing because all players had the same business model. Today it is not sufficient to choose a lucrative industry, but you must design a competitive business model. In addition increased competition and rapid copying of successful business models forces all the players to continuously innovate their business model to gain and sustain a
+b an
competitive edge”.
Based on his search of the literature, Osterwalder lists nine building blocks for managers to use in developing an innovative and effective business model. We list them, along with some comments of our own:
e “The value proposition of what is offered to the market”; We have covered this issue earlier in the chapter in general, and with specific reference to how Porter’s analytical tools can assist managers in generating a viable value proposition that consumers perceive as one that is superior to what is offered by the competition.
e “The target customer segments addressed by the value proposition”; Managers soon learn that they cannot be all things to all people, that what appeals to one segment of the market will not appeal to another. We will discuss this in more detail later in this chapter.
e “The communication and distribution channels to reach customers and offer the value proposition”; This issue relates to two of the “four P’s” (promotion and place) we discussed briefly when we discussed the marketing mix. For example, do we promote the business by word of mouth, signs on a storefront, ads in a newspaper, ads on TV, ads on the Internet, or some combination of all of these? Place refers to where the product or service is made available to the customer. The three usual choices are in a store, through a mail-order catalog, or from an Internet website.
e “The relationships established with customers”; In general, however, the important point is not just to acquire customers, but to serve them in a way that your business retains them as customers. For example, it is usually much more expensive to attract a new customer to your business than it is for you to encourage a previous customer to return.
e “The core capacities needed to make the business model possible”; This point refers to the necessity to define the basic capabilities your business must have. For example, if you are opening an art gallery to sell your own work, you had better have some talent as an artist!
e “The configuration of activities to implement the business model”; Another way of stating this is to define the business processes that your business must have in order to function properly.
e “The partners and their motivations of coming together to make a business model happen”; Partnerships and alliances are increasingly important in today’s world.
e “The revenue streams generated by the business model constituting the revenue model”; In essence, this is the Price component of the “Four P’s”. Where does your revenue come from, what are the projections for the future, and what are the plans to sustain the necessary revenue stream as business conditions change?
e “The cost structure resulting of the business model”. The difference between revenues and costs, of course, is your profit. Without a profit, it will not be possible for you to stay in business very long.
Examples of successful business models
It may be helpful to illustrate the concept of business models with two examples, McDonalds and CEMEX. In the case of McDonalds, it operates
franchises all over the world. Franchises are proven and successful business models whose business model “prescription” is successful within the country of origin and even overseas. Dominating the hamburger fast food market, McDonalds’ franchise model has also proven to be successful since it quickly adapts and evolves according to the environment. For example, McDonalds USA does not have hot sauces, but in Mexico where Mexicans like a lot of spicy food, they offer hot sauce, as well as spicy meat put into the hamburgers. Another successful example is the Mexican cement maker CEMEX (the world’s third largest producer of cement) that has successfully implemented and tested a standard business model called the “CEMEX Way” in all the plants and business units it has within more than 50 countries around the world. Considering it operates in four different continents, except Oceania, with very different cultures and ways of thinking; countries such as the US vs Thailand, or Italy vs Bangladesh; it allows CEMEX to have a very quick response mechanism to adjust to the market demands since it has a standard operational platform. This gives CEMEX a clear competitive advantage against its main rival giants such as Holcim and Lafarge.
Having established what a business model is, it is important to separate it from the design of a model actually implementing it, i.e. testing it and putting it into practice. The design is best defined as the strategy. If a business model design is not well outlined; the implementation and testing will also fail. Taking a very simple framework from Alexander Osterwalder (Business Model Design Blogpost, June, 2006) shown in [link], business model design is separated from business model execution, preceded, of course, by business execution implementation and testing. Companies in quadrant “B” with sound business model designs and effective execution are successful companies, and they must focus on staying in that quadrant. Companies in quadrant “C” need to re-examine their business vision and strategy, while companies in quadrant “D” do not have a good design but are effective on its implementation; this latter usually happens with the appearance of disruptive technologies that “shake up” established industries and business models much the way iTunes and the iPod did. It is very common for companies to have a sound business model design but fail to implement and test it properly (quadrant “A”).
Exhibit
5 D 2 o s a) o S| ° E wo o © 2 3 = & 2 m0
Flawed Sound
Business execution (implementation and testing)
Success = Business model design and implementation
If we seek to have a successful test result from a business model it is mandatory to have a clear vision as well as a sound business model design. The rest is a matter of testing and implementations, or “execution” as it is often called. Still, successful execution is sometimes the most difficult task of all.
The focus of the balance of this section will be to review the main issues
companies must consider in order to successfully implement and test a business model.
Model implementation/testing pre-requisites
A model must have the following pre-requisites in order to implement and test it:
1. A company owner/sponsor: Organizational models must manifest themselves as a cascading effect emanating from top to bottom. Therefore, the sponsor must either be the head of the company or other high level executive. Usually sponsors are identified as the head of a company department.
2. Sound budget: Testing a business model will always require funds. The amount provided must be the one demanded by the model to test it, no more and no less.
3. Leader: This is especially important since he/she will be the “authority” or responsible person who will get results.
4. Qualified human resources: The leader gets to choose his/her team. This an important point since the leader must look for the key individuals who are up to the test and have the necessary expertise to successfully implement and test a business model.
5. Effective training: With all the above accomplished, the final part of the pre-requisites is training. A business model automated or manually developed, must be operated by human beings, therefore these persons who will actually test and operate the model must have no doubts and be convinced about the model’s processes and the benefits of working accordingly to the business model.
Real expectations outcome: benefits
Usually companies have a tendency to be very optimistic about outcomes when a business model is tested. Companies must be balanced between being aggressive and demanding about the model benefits and be realistic when evaluating outcomes of the test. The main benefits to show when a business model is tested must be outlined around the next three aspects.
Economical: They must reflect tangible economical benefits, such as: cost reductions or sales increases.
Process: They must improve connections between the company’s value chain activities such as production, maintenance, procurement, finance,
human resources, etc. so they are better coordinated and decision making processes are more effective and timely.
Practice: They must improve the work flow of how things are done in the company. These improvements can be translated into creating better historical data for a company e.g. real time inventory transactions from a plant warehouse, or complete and accurate recording of a maintenance job performed on a specific item of plant equipment. This creates a more accurate data set, later used as important information to make decisions.
Success factors
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcewill@cnx.org.
Editors: Salvador Trevino and Carlos Ruy Martinez (ITESM, Monterrey Campus, Mexico)
Contributors: Carlos Alberto Alanis, Gaspar Rivera, Jorge Echeagaray, Jose de Jesus Montes, Juana Monica Garcia, Ramiro Robles, and Roberto Sanchez
Once the benefits have been shown, the next step is to preserve them. In order to do so, the following success factors must be kept in mind.
1.
2.
Have the appropriate leadership. Person(s) that can make well based and quick decisions to assure the continuity of the model once it has been implemented.
Create an internal environment of quick and flexible response. All departments of the company must be flexible and adjust quickly to events
. Have integrative indicators and measurements. This is a model
“thermometer”, one that will indicate if everything is going smoothly according to expectations or not. The indicators will show warning signs in order to take corrective action.
Have corrective actions or model adjustments. Learn from actual results by quickly adjusting and evolving the business model in an integrative way, being coherent, sound and aligned with the company vision.
Conclusions
After seeing what a business model is and the required issues involved in having a successful business model test and implementation; companies must keep in mind that there is no one time testing of a model and guarantees of success in the business world. In our era, businesses are dynamical propelled by technology that change constantly as we move more and more into a more global world. The keys for companies to succeed are to be always focused and to be flexible enough to adjust its business model quickly and effectively according to the changing demands of customers and markets.
One of the most important functions that companies can have to anticipate competitive threats and to recognize evolving market opportunities is to have a continuing competitive intelligence function within the company. Management failures are frequently associated with the inability to anticipate rapid changes in the markets, respond to new and proliferating competition, or re-orient technologies and the strategic direction of their business toward changing customer needs and new industry standards. Competitive intelligence is an important function in today’s rapidly changing business environment.
Consumer marketing models
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcewill@cnx.org.
Editors: Salvador Trevino and Carlos Ruy Martinez (ITESM, Monterrey Campus, Mexico)
Contributors: Carlos Alberto Alanis, Gaspar Rivera, Jorge Echeagaray, Jose de Jesus Montes, Juana Monica Garcia, Ramiro Robles, and Roberto Sanchez
The formal use of marketing concepts is a fairly recent activity in developing economies. In the past, most companies focused on producing products or offering services without much emphasis on customers and wants. Understanding consumer behavior was not considered to be important. The emphasis was on the product or service per se. Given the emergence of a global economy, however, which brought the opening of markets and increased competition, the traditional approach has changed dramatically. Companies are increasingly focusing on what customers need and/or want. Market-oriented companies are beginning to emerge in every developing economy in the world.
The purpose of this section is to introduce you to the importance of marketing oriented companies in developing economies, as well as identifying business models which follow a marketing model rather than a product model.
The product model vs the marketing model
According to Philip Kotler, the product model is a management orientation that assumes that if a quality product is produced, and offered to consumers
at a price they find to be acceptable, the company will be successful in the market place. Another author who successfully introduced a marketing orientation is Theodore Levitt. His orientation is sometimes referred as a “marketing myopia” approach since companies define their business in terms of products and not in terms of customer needs and wants. For example, a car manufacturer may think they are in the “car business” while they are, in fact, competing in the transportation industry.
Under the product model, management focuses on developing high quality products which can be sold at the right price, but with insufficient attention to what it is that customers really need and want. For example, Apple determined that what customers wanted was the ability to purchase music one song at a time rather than purchase an entire CD with 16 tracks, only three of which were really wanted. They subsequently developed and introduced the iPod and iTunes online store which revolutionized the way consumers buy music. In the meantime, traditional producers of traditional CDs lost market share to Apple, which had a much better understanding of how to satisfy consumers.
The premises implicit in the product model are:
e Consumers buy products more than solutions.
e Consumers are interested basically in product quality.
e Consumers recognize product quality and differences in performance alternative products.
¢ Consumers choose between different products based on getting the best quality for the money.
e The main task of organization is to keep improving quality and reducing cost as key factors to maintain and attract customers.
The product model used to be applied in developing or closed economies where few, if any choices were available. Advantages of the product model are that the cost of determining consumer preferences and the development of new products and services are minimized or eliminated because consumers are in some way captive. By way of example, compare the automobile industry in developed countries to the automobile industry in the Soviet Bloc countries prior to 1989. Customers had a wide variety of automobile models to choose from while citizens in the Eastern Bloc had
few. The latter was operating on a product model rather than a marketing model. Disadvantages of the product model are that as soon as a company could offer a product more oriented to satisfy customers’ needs and desires the companies oriented to products will lose the most if not all of its market share. The traditional CD companies referred to above are a good example of this.
In summary, market orientation is essentially a customer orientation. Understanding customer needs lies at the core of the marketing concept.
The marketing model
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editors: Salvador Trevifio and Carlos Ruy Martinez (ITESM, Monterrey Campus, Mexico)
Contributors: Carlos Alberto Alanis, Gaspar Rivera, Jorge Echeagaray, Jose de Jesus Montes, Juana Monica Garcia, Ramiro Robles, and Roberto Sanchez
The marketing model is a management orientation which maintains that the fundamental task of the organization is to determine needs and wants of customers in the target market and adapt the organization as a whole to satisfy their customers more effectively and efficiently. Satisfying customers more efficiently and effectively than competitive companies increases the chances of the organization’s success. The marketing model is an approach whereby companies create value for their customers. This concept can be understood by applying it in the so called Value Chain Model introduced by Michael Porter. An application on how this model is applied in marketing is shown [link] below.
Exhibit
Value chain of marketing
e First, you need to know and understand your customers’ needs and wants.
e Based on your understanding of their needs, through research and development you must develop an appropriate product or service that fulfills those needs.
e Based on your engineering capabilities you must define your manufacturing process that delivers the right product in the most efficient and economical way.
e Finally, the product or service must be delivered at the right time and place.
A simple way to understand the creation of value to customers is by examining the following equation:
Value = Benefits / Price
Value is created by increasing benefits to the customers. For this reason, “benefits” is specified in the numerator of this equation (the higher the benefits, the higher the perceived value by the customer); on the other hand, “price” is placed in the denominator since the higher the price the lower the perceived value.
Now you must understand how value is created for your customers. To do SO, Managers use a technique called the “Marketing Mix” (commonly called the four P’s)
¢ Product: What is the product/satisfactor that best fulfills my customer’s needs?
e Price: What should be the appropriate price for this product that reflects not only its cost but also its benefits to compete with other products in the same segment or substitute products?
e Place: In what markets should the company offer the product?
e Promotion: How should the company promote the product or satisfactor?
One of the main advantages of the marketing model approach is that the company tries to be near the customer’s needs by understanding them and therefore developing products that fulfill or exceed them in the best possible
way. On the other hand, and especially in developing economies, the main disadvantage of this model is the cost in obtaining the information needed to understand the customer.
Identifying market needs
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcewill@cnx.org.
Editors: Salvador Trevifio and Carlos Ruy Martinez (ITESM, Monterrey Campus, Mexico)
Contributors: Carlos Alberto Alanis, Gaspar Rivera, Jorge Echeagaray, Jose de Jesus Montes, Juana Monica Garcia, Ramiro Robles, and Roberto Sanchez
As mentioned previously, the essence of applying the marketing model lies in the finding of needs and filling them wisely. We will assess this issue of “Identifying market needs” by introducing a conceptual framework known as Abraham Maslow’s Hierarchy of Needs.
This model focuses in the psychological features that explain the basic dimensions of human needs.
Maslow’s Hierarchy of Needs
Maslow’s Hierarchy of Needs, a staple of sociology and psychology courses, provides a useful framework for understanding how and why local products and brands are being selected and additionally how they can be extended beyond home country borders. Maslow hypothesized that people’s desires can be arranged into a hierarchy of five needs. As an individual fulfils needs at each level, he or she progresses to higher levels (see Exhibit 3 Maslow’s Hierarchy of Needs). At the most basic level of human existence, physiological and safety needs must be met. People need food, clothing, and shelter, and a product that meets these basic needs has potential for introduction into a specific market. However, the basic human
need to consume food and liquids is not the same thing as wanting or preferring a hamburger and a soft drink.
An additional consideration is that preferences are deeply embedded in local cultures. Responding to such differences has required the creation of products and brands for specific regional or country markets.
Mid-level needs in the hierarchy include self-respect, self-esteem, and the esteem of others. These social needs, which can create a powerful internal motivation, driving demand for status-oriented products, cut across the various stages of country development.
Luxury goods marketers are especially skilled at catering to esteem needs on a global basis. Some consumers flaunt their wealth by buying expensive products and brands that others will notice. Such behaviour is referred to as “conspicuous consumption” or “luxury badging”. Any company with a premium product or brand that has proven itself in a local market by fulfilling esteem needs should consider devising a strategy for taking the product global.
Exhibit rN ae ea eee @ Salling for self realisation and personal growth esteem belongingness &love
the requirements for survival
Zz food, water and shelter
physiological needs
Maslow’s Hierarchy of Needs
Source: http://www.provenmodels.com/19/image
Identifying customer’s wants successfully
A process to determine the actual needs of consumers requires the identification of the market factors that produce them. In this process companies should find real consumption motivators that eventually evolve into product offerings. Furthermore, a correct business definition leads to a natural market orientation; for instance, Charles Revson famous quote “in the factory we make cosmetics; in the drug store we sell hope” (www.thinkexist.com) made possible for the company to develop cosmetic products based on women’s hopes rather than product features. Several potential pitfalls should be avoided. First, the natural tendency to impose a personal point of view when launching a new product or entering a new market. Second, simple imitation about competitors’ moves. Third, lack of sufficient research and market knowledge to produce market proved ideas. A framework has been proposed to align customer’s needs and wants with companies capabilities. This framework was introduced by Sherri Dorfman in her 2005 marketing article entitled “What do Customers Really, Really Want”.
In the article aforementioned, Dorfman proposes a three-step process to develop a natural market orientation:
Discovery: Finding out what To learn about customer needs and priorities, to customersidentify opportunities in the company to fulfill these really needs, and to create new or enhanced product need offerings. These ideas must be incorporated in a market research process involving customers and other clients and suppliers in the Value Chain. Definition: Shaping the In this step, Dorfman proposes prioritizing features and offerings benefits identified by clients, suppliers, and customers. to meet Different qualitative research techniques such as in- depth interviews, ethnographies, and focus group
customer needs _ sessions permit the identification of the core market needs.
Validation: Insuring your Further communication with consumers validate the offerings fit final definition of a market based product or service. into your This validation takes place as prototypes are customer's assessed by consumers to identify potential world. problems and to smooth out design issues.
All these models take into account the so-called end consumer perspective, which implies that consumers buying, using, or recommending the products are the driving force behind successful marketing efforts.
However, there are other marketing perspectives that assume that organizations of many sorts, given their importance in the overall size of the global economy are the real forces behind markets’ success. This implies that marketing efforts should be aimed at understanding their behaviour as consumption entities, and use this knowledge to develop marketing Strategies.
Business to business marketing models
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editors: Salvador Trevino and Carlos Ruy Martinez (ITESM, Monterrey Campus, Mexico)
Contributors: Carlos Alberto Alanis, Gaspar Rivera, Jorge Echeagaray, Jose de Jesus Montes, Juana Monica Garcia, Ramiro Robles, and Roberto Sanchez
Models of industry attractiveness; the strategic perspective
In order to be successful in business, we must understand what our customer’s needs and wants are and deliver them in an efficient and profitable manner. In order to do so, we must also understand the industries in which the companies are immersed and what makes them attractive from the general point of view.
Industry attractiveness was initially described by Michael Porter in his book, Competitive Strategy (Porter 1980). Porter’s well-known Five Forces Model is often used as an analytical tool by companies when they are deciding whether or not to enter a particular industry. According to Porter, what makes an industry attractive or unattractive is determined by 5 forces:
1. Rivalry: This force is measured by how intense the rivalry/competition relationship in an industry is. The factors affecting rivalry are: number of competitors, slow market growth, low levels of product differentiation, how aggressive competing companies are, etc. For example, retailing has always had the reputation of being a highly
competitive industry, while the rail road industry is thought to be less competitive.
2. Threat of substitutes: In Porter's model, substitute products refer to products that can be substituted for your own. Substitute products can be found within own or other industries. For example, if you decide to start an inter-city bus company, you have to consider all the other options your customers have to get from one city to another, for instance, city trains, small shuttle service, shared private cars, among others.
3. Buyer power: The power of buyers is the impact that customers have on a producing industry. In general, when buyer power is strong, the buyer has the ability to set the price because usually there are very few buyers and many suppliers. Grain farmers are often used as an example. In most countries, there are many small farmers who grow grain, but few large buyers who have the power to set the price a farmer receives.
4. Barriers to entry: Barriers to entry are unique offerings of companies in an industry that any company wishing to enter that industry must be prepared to overcome. Examples from developed economies are online banking and ATM services for banks and frequent flyer programs for airlines. In many cases, development of these expected products or services is quite expensive for a new entrant, and, thus, it s a barrier to entry.
5. Supplier power: Suppliers are powerful when there are few suppliers for a company to purchase necessary items from. In a situation where there are few suppliers, it is typically difficult for a buyer to get a lower price from another supplier. An example is the oil industry, where they are many buyers, but relatively few suppliers, and most of the suppliers are members of the OPEC cartel which sets common production quotas, thereby controlling the market price for oil.
Michael Porter developed two other tools that are widely used by organizations in their approach to markets: Three Generic Strategies and the Value Chain.
Porter postulated that a firm should adopt only one of three generic strategies. They are illustrated in :
Exhibit
strategic advantage
uniqueness perceived by low-cost the customer position
VW V7
industry - - overall cost wide differentiation leadership multi-segment
~ oO o =) oc pe] 2 2) ao P=) co kL - 7)
particular segment
Source: http://www. provenmodels.com/27/image
A firm can choose to be the low cost producer for a wide segment of the market; it can offer a differentiated product for a wide segment that customers are willing to pay more for because of its perceived greater value; or it can focus on a market niche as a low cost producer or with a differentiation strategy. For example, the original Volkswagen automobile focused in a broad low-cost market. As a matter of fact, the word in German means “Peoples Car”, indicating it was meant to be affordable by everyone. A good example of a differentiated automobile is the BMW. People pay more for a BMW because of the “conspicuous consumption” or “luxury badging aspects” they have managed to create in peoples’ minds, not necessarily because the BMW is actually worth 30 per cent more than a
comparable automobile from Cadillac or Nissan. An example of a car positioned towards a low cost niche is the Mazda Miata, a two-seat sports car that costs much less than comparable cars. Finally, you can consider the Hummer as a car that appeals to a differentiated market niche.
Porter’s other widely-used tool is the Value Chain, which is used to model the firm as a chain of value-creating activities or processes. Porter identified a set of interrelated generic processes common to a wide range of firms. He divided them into primary activities and support activities, as illustrated in [link].
Exhibit
firm infrastructure
” c ° S © - ® Qa °
outbound logistics marketing
inbound logistics & sales
Value chain
Source: http://www. provenmodels/26/image
The primary activities in the value chain are: inbound logistics, operations, outbound logistics, marketing and sales, and service. The support activities are procurement, technology development and research and development, human resource management, and firm infrastructure (top management). The primary value chain activities are interrelated, to the extent that they can be formed with high quality and low cost, the firm will be able to have value-added that will be returned to the firm as profit. As an example of the way that primary value activities are interrelated, suppose that the inbound logistics process does not do well in identifying raw materials of poor quality. This will cause problems with the next process, operations, and it may cause problems as far down the value chain as service after the sale. The value chain is, thus, a useful tool for analysing a company’s business processes and searching for ways to lower costs, improve efficiency or search for process innovations.
Other Strategic Models
There are many other strategic models used by companies to help them formulate their overall business and marketing strategies. Three of best known models are the Boston Consulting Group (BCG) Matrix, the McKinsey Matrix, and Larry Downe three forces. Each of these models is described below.
The BCG matrix
The BCG matrix method is based on the product life cycle theory that can be used to determine what priorities should be given in the product portfolio of a Strategic Business Unit (SBU). To ensure long-term value creation, a company should have a portfolio of products that contains both high-growth products in need of cash inputs and low-growth products that generate a lot of cash. This model can be explained in two dimensions: relative market share and market growth. The basic idea behind this model is that the larger the market share a product has relative to its competitors or the faster the
product's market grows, the better it is for the company in an economic sense. The key components of the matrix are illustrated in [link] and
discussed below:
Exhibit
Market Growth Rate (Cash Usage)
Low
BDG Matrix Source: http://www.quickmba.com/strategy/matrix/bcg l
1. Stars (high market growth, high relative market share). These are products that require large amounts of cash and are also leaders in the business and therefore they should also generate large amounts of cash. They are frequently roughly in balance on net cash flow.
2. Cash Cows (low market growth, high relative market share). These are products that generate high amounts of profit and cash, and because of the low growth, investments needed should be low.
3. Given its characteristics, companies should avoid and minimize the number of products in this category. If the product does not deliver cash, it may be discontinued.
4. Question Marks (high market growth, low relative market share). These products have the worst cash characteristics of all, because of high cash demands and low returns due to low market share. If nothing is done to change the market share, question marks will simply absorb great amounts of cash and later, as the growth stops, it may become a dog. So, managers should either invest heavily in order to improve market share, or sell off/invest nothing and generate whatever cash is possible.
The McKinsey matrix The McKinsey matrix is a later and more advanced form of the BCG
Matrix. It has several differences with BCG’s matrix, as discussed below. It is illustrated in Exhibit 6.
Exhibit
McKinsey Matrix
Source: http://www.quickmba.com/strategy/matrix/bcg/
1. Market (Industry) attractiveness replaces market growth as the dimension of industry attractiveness. Market attractiveness includes a broader range of factors other than just the market growth rate that can determine the attractiveness of an industry/market. For example, market attractiveness could be determined using Porter’s five forces model.
2. Competitive strength replaces market share as the dimension by which the competitive position of each Strategic Business Unit is assessed. Competitive strength likewise includes a broader range of factors other than just the market share that can determine the competitive strength of a Strategic Business Unit.
3. Finally the McKinsey matrix works with a 3x3 grid, while the BCG Matrix has only 2x2. This also allows for more insight in the analysis of the business.
Downes’ three new forces
Larry Downes (1999) identifies three new forces that require a totally different perspective towards a strategic framework and a set of very different analytic and business design tools: digitalization, globalization, and deregulation.
Digitalization: As the power of information technology grows, all players in a market will have access to far more information. Thus, totally new business models will emerge in which even players from outside the industry are able to vastly change the basis of competition in a market. Downes gives the example of the rise of electronic shopping malls, operated for instance by telecom operators or credit card organizations. Those who use the Five Forces Model and who base their thinking on today’s industry structure would never see these changes coming in time.
Globalization: Improvements in distribution logistics and communications have allowed nearly all businesses to buy, sell, and cooperate on a global level. Customers, meanwhile, have the chance to shop around and compare prices globally. As a result, even locally oriented mid-sized companies find themselves in a global market, even if they do not export or import themselves. In addition, global and networked markets impose new requirements on organizations' strategies. It is not enough any more to position oneself as a price-leader or quality-leader (as Porter suggests in his Generic Strategies model). Rather, competitive advantages emerge now from the ability to develop lasting relationships to more mobile custumers and to manage far-reaching networks of partners for mutual advantage.
Deregulation: The past decade has seen a dramatic shrinking of government influence in many industries like airlines, communications, utilities, and banking in the US and in Europe. Fueled by the new opportunities provided by information technology, organizations in these industries were able and
forced to completely restructure their businesses and to be on the lookout for new opportunities and competitive threats. For example, traditional land line telephone companies that did not enter the wireless telephony market found themselves with a shrinking customer base. This is because young people frequently use only cell phones now and do not bother to have a land line phone in their homes.
Chapter summary
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editors: Salvador Trevino and Carlos Ruy Martinez (ITESM, Monterrey Campus, Mexico)
Contributors: Carlos Alberto Alanis, Gaspar Rivera, Jorge Echeagaray, Jose de Jesus Montes, Juana Monica Garcia, Ramiro Robles, and Roberto Sanchez
While each of these models (and others we have not covered) have their own strengths and weaknesses, what organizations must learn is how to best utilize each of them. Porter still is the best known authority in strategy models and complemented with Downes’ digital age model works well for many companies. BCG’s Matrix and Mckinsey’s Matrix help diagnose the dimensions in a product’s life cycle. They are all tools, and just as a workman has many tools in his tool kit, so managers must have many tools in theirs, and know when to use the right tool in a given situation.
Example:
Establishing that a market exists: Market research
Understanding the market’s needs, competitors’ strategies, and to obtain information for decision making, it is imperative to do market research. Next, we will introduce a case that demonstrates the value of market research to any firm willing to spend time and resources using it. After this example is introduced, two sections are developed. One, introducing the market research process, and second, the general guidelines on how to conduct a market research study.
A Candy Store Company with subsidiaries in New York and other large cities in US was interested in opening a store in Monterrey, Mexico.
The New York subsidiary is located in one of the most visited areas of Manhattan. It is housed on three floors, a huge locale focused on selling all type of candies. Every floor has a thematic decoration, characters, and games, depending on the type of candies sold on that floor. Inside they even have a coffee shop. They employ a high price strategy, and most of their visitors are tourists (a differentiated niche in Porter’s Three Generic Strategies model).
The plan for the store located in Monterrey was recently completed. It will be a big store, almost the same size as the one in New York, with high prices and focused on high-income consumers. Additional to the thematic areas defined in the New York store, this store will have a space for “old candy brands” to attract older consumers. The store will also have a section for local brands.
A consultant was hired for advising the owners on how to achieve the plan. His first advice was to do some market research to understand the real opportunity. The market research results were astonishing: there was no market in Monterrey. Consumers loved the idea, but they were not willing to pay the high prices or even to visit the store more than once a month and being Monterrey city with a small amount of tourists there would not be enough revenue to maintain the business.
The investment for opening the store in Monterrey was about USD 1 million dollars. The potential entrepreneurs spent around USD 10 thousand in marketing research, which kept them from making a bad investment. The market research process
There is an inherent risk when trying to expand the market, launching a new product, or starting a new business. Defining that a market exists for your business idea will help in reducing that risk.
You may think that with a bunch of collected data and facts you will be able to decide whether or not to go forward with your idea. But the challenge is not just collecting the data, but how to transform it and how to use it. Market research will support you in collecting, transforming, and getting meaning from the data.
Some of the reasons why market research is so important are:
1. The cost of errors. Launching and selling a new product that is not successful in the marketplace could cause you to lose your entire investment.
2. Conducting market research will help you identify new trends, market segments, and niches.
3. Market research will end up saving you time by developing focused strategies based on a better understanding of your customers.
Market research involves all the activities that allow the company to obtain the required data for decision support. Market research is collecting, interpreting, and communicating the information used for strategic marketing. The most typical approaches are to conduct a tailored, one-time market research study as described below, or to use readily available information such as the periodical information provided by companies like AC Nielsen.
This section will describe how to conduct a market research study. The main steps are:
1. Identify and define the problem: The first step is defining the target or problem to solve for your market research. Most of the time it is more than one problem to solve, but you should prioritize. The right definition of the problem should allow us to obtain the needed data.
2. Define the objectives: The objective should answer the question of what you want to obtain from the market research. In this step you should define the scope and action plan. Developing the objectives should consist of establishing a budget, understanding the environment, developing the approach to analysis, and formulating hypotheses.
3. Developing a research plan: Based upon a well-defined problem and objectives, the framework for the research plan should be apparent. This step requires the greatest amount of thought, time, and expertise. It includes incorporating knowledge from secondary information, analysis, qualitative research, methodology selection, question measurement and scale selection, questionnaire design, sample design and size, and determining the data analysis to be performed.
4. Collecting the data: This is the point at which the finalized questionnaire (survey instrument) is used in gathering information
among the chosen sample segments. There are a variety of data collection methodologies to consider. For instance: Computer Assisted Telephone Interviewing, Mail Survey, Internet Survey, Mall intercepts, Traditional telephone interviewing, Internet panel, home panel, among others.
5. Performing data analysis: This is the process of analyzing the collected data, and transforming complex to simple information. Less complex analysis on smaller data sets can be handled with any of a number of personal computer office suite tools, like spreadsheets, while more complex analysis and larger data sets require dedicated market research analysis software. Types of analysis that might be performed are simple frequency distributions, crosstab analysis, multiple regression (driver analysis), cluster analysis, factor analysis, perceptual mapping (multidimensional scaling), structural equation modeling and data mining
6. Reporting and presentation: This is one of the most important steps. All business critical information and knowledge that comes from your market research investment are limited by how they are presented to decision makers. There are as many reporting styles as there are research reports, but some are definitely better than others, and there are definitely trends to be aware of.
It is important to mention that market research by itself does not arrive at solutions or marketing decisions. It does not even guarantee your business success. However, when conducting a well-executed market research study you can reduce the uncertainty in the decision-making process, increasing at the same time the probability and magnitude of success.
To illustrate these concepts in a live situation, we have included a discussion of how a market research study was performed to determine the potential market for a new concept for funeral services in Monterrey, Mexico.
Market research to determine the potential market for funeral services in Monterrey, Mexico
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dewill@cnx.org.
Editors: Salvador Trevino and Carlos Ruy Martinez (ITESM, Monterrey Campus, Mexico)
Contributors: Carlos Alberto Alanis, Gaspar Rivera, Jorge Echeagaray, Jose de Jesus Montes, Juana Monica Garcia, Ramiro Robles, and Roberto Sanchez
Background: A group of investors thought about developing a new enterprise concept of funeral services in Monterrey, Mexico. The main idea was to offer improved funeral services, satisfying a need not yet covered in the city.
Concept of the project: The company will offer funeral services to people of socioeconomic level A and B+. The new funeral services will include: Sale of coffins or crematory urns, luxury transportation, memorial vigils, chapel, flowers and cafeteria services, religious ceremonies, wide parking with valet parking service, legal requirements, condolences via Internet, publication of brief letters, private room for the family with foods at the request of the client and pre-arranged funeral plans.
The architecture of the place will include many green areas, big spaces and a quiet and peaceful atmosphere.
The added value will be to support the client in his pain, reason why a specific executive will be in charge of all the proceedings and procedures for the memorial vigil and burial of his beloved.
Objectives:
e To understand if a potential market exists for a funeral services enterprise in Monterrey City.
e Identify current specific needs for the sector.
e Evaluate project concept.
e Evaluate project location.
e Evaluate project name and logo.
¢ Methodology:
Stage I Qualitative study: 2 sessions group with the following profile:
Session 1: Men between 35 and 50 years of age, from socioeconomic level A and +B who experience in the process of hiring funeral services in the last year.
Session 2: Women between 35 and 50 years of age from socioeconomic level A and +B who had experience with the process of hiring funeral services in the last year.
Stage Il Quantitative study:
The size of sample was of 472 personal interviews to men and women of socioeconomic level A and +B, ages between 35 and 60 years old, who live in Monterrey and its metropolitan area.
Main findings and conclusions:
In this research we found an important opportunity at the funeral logistics services since 76 per cent of the interviewed people consider that it is necessary to have a company of this type in the city, since at the moment the companies that offer these services have many opportunity areas.
“Cedillas del Toro”, the most important funeral services enterprise up to date show us some opportunity areas as: lack of parking, mentioned by 15 per cent of the sample; the lack of a comfortable cafeteria, mentioned by 10 per cent of the sample; small chapel, mentioned by 7 per cent of the sample; and the temperature of the very cold climate, mentioned by 7 per cent of the sample, among others.
In the qualitative study, people interviewed mentioned what they dislike about “Cedillas del Toro” is that the memorial vigils have a common area for visits in where you can not identify whom each person is accompanying, turning it very informal.
The challenges that we found at the second more important funeral services company of the city, “Cedillas Carmelo” were: high price (20 per cent of mentions), lack of facilities for handicaps (crowded elevating) (15 per cent of mentions) and poor availability of chapels (only three) (10 per cent of mentions), among others.
The concept of the new funeral services enterprise was very well accepted by most of the people interviewed (70 per cent), mainly the idea of having a person who facilitates all the funeral proceedings, seems to be very helpful and important in those moments of grief.
The proposed location for the new funeral services enterprise had an acceptance of 80 per cent of the people interviewed, mainly because they are near the most important churches of the city with easy accesses.
The options of names people interviewed preferred were “Cedillas Marian” or “Cedillas de Maria” by 45 per cent and 30 per cent respectively.
The people interviewed in the qualitative study suggested some ideas to improve the concept mentioned like: To have a private area with all the comforts (telephone, computer, air condition, bath) for the family who does not wish to receive visits, that have a pleasant decoration (not funeral), and personal attention, among others.
Thanks to this market study, the investors could corroborate the idea that a funeral service enterprise in Monterrey may be a good business opportunity.
In addition they could delineate the concept according to the market.
The funeral business has been an economic success so far, thanks to its clear definition of its mission and its market oriented philosophy: always searching for and delivering an excellent service to its customers.
Discussion questions
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcewill@cnx.org.
Editors: Salvador Trevino and Carlos Ruy Martinez (ITESM, Monterrey Campus, Mexico)
Contributors: Carlos Alberto Alanis, Gaspar Rivera, Jorge Echeagaray, Jose de Jesus Montes, Juana Monica Garcia, Ramiro Robles, and Roberto Sanchez
e Think of an industry with which you are familiar. Discuss the major elements of a business model and apply it to the industry chosen. What features in the model appear to be a standard compared to other industries?
e What are the steps in the process of customers’ needs and wants identified in the chapter as defined by Dorfman?
e Or: Refer to the section of this chapter entitled “Identifying customers’ wants successfully”. In Dorfman’s framework three steps lead to the identification of customers’ need and wants. This process ends on the validation of needs. What would be a further step geared to identify future needs?
e Read the case about the Market research to determine the potential market for funeral services in Monterrey, Mexico.
o What objectives would you propose for this study?
°o Methodology suggested?
o What policies could be derived from the information obtained by the Marketing Research study?
References
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editors: Salvador Trevino and Carlos Ruy Martinez (ITESM, Monterrey Campus, Mexico)
Contributors: Carlos Alberto Alanis, Gaspar Rivera, Jorge Echeagaray, Jose de Jesus Montes, Juana Monica Garcia, Ramiro Robles, and Roberto Sanchez
Direccion de Mercadotecnia. Analisis, planeacion y control. Philip Kotler, 4* edicion.
What Do Your Customers Really, Really Want? Sherri Dorfman. ?June 7, 2005
Osterwalder, Alex. “Success = Business Model Design AND Implementation”. June 11, 2006. <http://business-model- design. blogspot.com/2006/06/sucess-business-model-design-and.html>.
CEMEX Web site. CEMEX S.A. DE C.V. April 2007. <http://www.CEMEX.com>.
McDonalds Web site. McDonalds Corporation. April 2007. <http://www.mcdonalds.com>.
Wikipedia. Business model definition by Osterwalder, Pigneur and Tucci.
Learning objectives
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editor: John Maynard (The University of Georgia, USA)
Contributors: Suzanne Barnett, Lydia Jones, Carol McDonell, Bernie Meineke, Tammy Segura (Georgia Small Business Development Center, USA)
Reviewer: Dr Gideon Markman (The University of Georgia, USA)
e differentiate between the growth stages of business organizations
e understand how businesses can organize their tasks and responsibilities
¢ compare the advantages and disadvantages of tall versus flat organization structures
e distinguish between the various types of business legal entities (see skill head, US legal issues)
Introduction
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editor: John Maynard (The University of Georgia, USA)
Contributors: Suzanne Barnett, Lydia Jones, Carol McDonell, Bernie Meineke, Tammy Segura (Georgia Small Business Development Center, USA)
Reviewer: Dr Gideon Markman (The University of Georgia, USA)
This chapter discusses organizational issues owners face while operating and attempting to grow their businesses. We examine four stages of organizational growth and the choices business owners face when deciding how to manage tasks and responsibilities. Those management decisions shape an organization's structure, which in turn influences lines of communication and decision-making processes.
The end of the chapter includes a short description of business legal entities. Also, you will find exercises to help you better grasp these concepts and to determine what type of organizational structure and legal entity might best suit your venture.
Moving from a one-person band to an orchestra
Most businesses start like a one-person band. The owner plays all the instruments, some better than others, but all out of necessity.
Like any musical ensemble, a small business includes many roles. In the beginning, the owners are often the best at making or delivering the product
or service. Since they have the most at stake, they often assume a wide variety of roles, including sales, accounting, and much more.
Through a combination of skill, planning, talent, and perhaps luck, some businesses manage to grow. This growth leads to new and changing roles in the business for everyone, including the owner. Of all the roles an owner has in the business, perhaps the most important one is to be the designer for the business.
In the role of chief designer, business owners have three critical duties:
¢ Provide the vision and direction for the company. Owners set the direction for the values of the company, develop its product and service strategies, and set the tone for its relationships with customers.
¢ Develop and refine processes and procedures. Owners design the “business model”, or the big picture formulas and processes of doing business. Then, they must fill in the details by analyzing processes and finding bottlenecks.
e Create the organization’s human resource structure. Owners identify the positions and types of people the business needs, and then they find the people to fill those roles. In the words of Jim Collins, author of the bestseller Good to Great, "Get the right people on the bus, the wrong people off the bus, and get everyone in the right seats."
The payoff for a well-designed business is immense. With clarity of vision, expectations and processes, and with the right people pulling together, there is a strong foundation for growth. Instead of a grim “never take a day off” grind, the business owner can now enjoy the ride—and maybe take a day off from time to time. It is also now possible for the owner to think about a profitable exit, because a business that can run without the owner is worth a lot more than one that falls apart when he or she is not at the controls.
Owners of a growing business eventually have to decide how to organize employees and delegate authority. Doing so can be a frustrating task for many entrepreneurs. Most would rather concentrate on closing sales, producing product, or managing cash. However, they do so at the peril of putting off planning for the future needs of their enterprise.
Organizational issues
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editor: John Maynard (The University of Georgia, USA)
Contributors: Suzanne Barnett, Lydia Jones, Carol McDonell, Bernie Meineke, Tammy Segura (Georgia Small Business Development Center, USA)
Reviewer: Dr Gideon Markman (The University of Georgia, USA)
Organizational issues
Entrepreneurs typically know when their company needs a structural overhaul. The owner can no longer juggle all the critical day-to-day activities. Important decisions are delayed, customer contact suffers, employees feel overwhelmed and confused about their and others' roles in the organization. As the employee count rises, someone other than the owner has to manage and be empowered to make critical decisions. The stress generated by these various dysfunctional symptoms eventually reaches a point where the owner has to decide to either continue growing the business (but in a more managed way) or to restrict its growth to effectively manage the firm single-handedly.
Acme Security Company’s (the name has been changed to maintain its anonymity) original organizational structure caused many problems for the company, especially as its customer base began to expand.
"The company provides security and fire alarm systems for high rise buildings and large corporate and government customers. It had grown to more than 40 employees in a short time, but was finding it increasingly
difficult to provide the service customers expected. The company’s organizational structure had evolved to meet the needs of the many family members that worked in the company, but not the needs of the customers."
The company had a product-based structure. The departments included Inspection, Maintenance, and Alarm Installation. Each department had a manager, a sales manager, field crews and administrative support. Even though most customers needed and purchased all of the company’s services, no one was responsible for meeting the total needs of the customer. Each department focused on getting its work done. The lack of communication and coordination resulted in scheduling snafus and invoicing problems. A growing number of petty details quickly buried the CEO and prevented her from focusing on the important strategic and financial issues facing the company. She was also a bottleneck that contributed to customer service problems. No wonder she kept a candy dish filled with antacids on her desk!
Exhibit
Acme Security, Inc.
Original Organization Chart
CEO
Administration Inspection Daywork/ Alarm Department Service Department
Office Inspection Sales! Alarm Alarm Manager Manager Design Manager Coordinator Design! Receptionist Field Crews Ssles .
Inspection " Field " Admin
Admin Inspection
—_——
A product-based organization
From the customer’s point of view, working with Acme Security was akin to entering a restaurant and having to order the appetizer from the appetizer waiter, entrée from the entrée waiter, and dessert from the dessert waiter. In this scenario, each waiter is only concerned with getting his or her order complete and delivered. The dessert might arrive before the entrée or appetizer. And if the entrée is delivered cold, the other waiters cannot help. Finally, once the meal is over, all the waiters have to get together to figure out the bill. Like Acme Security, the restaurant’s structure made it difficult, if not impossible, to deliver quality service.
With the ultimate goal of improving customer service, what should the new and improved Acme Security organizational structure look like? For this company, a function-based rather than a product-based structure was more
appropriate. The most important change was to assign one person as the primary contact for each Acme Security customer. This Account Manager would report to the Sales Manager. The new company structure features two other key management positions, an Operations Manager and an Office Manager. These three key managers report to the CEO. The challenge for the CEO was to delegate responsibility and authority to these three managers. Below we will discuss the composition and responsibilities of these three functional departments:
Exhibit Acme Security, Inc.
New Organization Chart
CEO
Sales Operations Office Manager Manager Manager Account Account Scheduling Job Accounting Human Manager Manager Costing Resources Account Alarm Inspection = aaa
A Function-based organization
Sales: includes the Sales Manager, the account managers and estimators. Account Managers are assigned by building or a major corporate account. This way everyone in the company, and more importantly the customer, knows who is responsible for a question or problem. The Account Manager's primary task is to meet the customer’s total needs, and to make sure the invoices for work performed are issued in a timely manner.
Operations: includes the operations manager and the field crews. This department includes a position responsible for scheduling all operations work and a position responsible for collecting and entering all job cost information. Operations’ primary task is to meet the needs of the Account Manager and the needs of the Office Manager with respect to information required to process invoices and payroll. The department maintains a centralized scheduling system that is accessible to everyone. They notify the Account Manager that a job is complete, provide the necessary job costing and billing information so that the Account Manager can notify accounting that an invoice should be issued.
Administration is led by the Office Manager. This department includes the receptionist, Accounting Manager, and Human Resources. This department’s primary task is to issue invoices and manage payables, receivables, and to provide management with timely financial reports.
With improved structure and communication, the CEO of Acme Security can focus on more strategic issues and replace the bowl of antacids with chocolate!
Organizational stages of growth
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editor: John Maynard (The University of Georgia, USA)
Contributors: Suzanne Barnett, Lydia Jones, Carol McDonell, Bernie Meineke, Tammy Segura (Georgia Small Business Development Center, USA)
Reviewer: Dr Gideon Markman (The University of Georgia, USA)
As an organization grows, it generally progresses through four stages of increasingly formal management structures.| footnote |
Longenecker, Justin Gooderl, Moore, Carlos W.; Petty, J. William; Palich, Leslie. (1991). Small Business Management: An Entrepreneurial Emphasis. South-Western College Publishing. Mason, OH.
Stage 1: In a one-person operation, the owner does everything: sales, bookkeeping, marketing, production and so on. Many firms remain one- person operations indefinitely due to the owner's family obligations, financial constraints, or contentment with the status quo.
Stage 2: As more people join an organization, the business owner becomes a player-coach. The entrepreneur continues to perform day-to-day tasks, but along with other employees. So the owner assumes additional employee management duties such as hiring, scheduling, supervising, and payroll.
Stage 3: Firms reach a major milestone in organizational development when they add an additional level of supervision. The owner relinquishes some direct control and begins working through an intermediary layer of professional managers.
Stage 4: As a company adds more layers of management and processes, it also adopts written policies, budgets, standardized personnel practices, organizational charts, job descriptions, and control protocols.
Departmentation
New business owners do not ask themselves how they should organize their business. Rather, they organize by objective: what does it take to get a job done, meet a goal or create wealth. How owners organize a company depends on a multitude of factors: for example, are certain tasks performed in-house or out-sourced? Are people (staff and management) with the necessary skills available?
Business scholars have categorized various organizational structures as described below. However, do not assume that a growing business must at one point or another assume one of these structures. Rather, smart entrepreneurs constantly tweak their organizations to remain agile to take advantage of new opportunities or respond to new challenges. Sometimes the changes necessary to move from a small to larger business require gut wrenching decisions: for example, personnel that might have played key roles in establishing a new business might not be the right fit for a larger, more structured organization.
As the business grows, its organizational structure is heavily influenced by function (people grouped with similar responsibilities), process (people involved in similar processes), product (people building a specific product) or projects (members of a project).[footnote] A firm's structure might be influenced by some or all of these types of departmentation. Large firms usually employ a variety of departmentation styles, selecting the most appropriate form for each subsystem.
“Entrepreneurial Firms: An Examination of Organizational Structure and Management Roles Across Life Cycle Stages,” Watson, Kathleen M., Plascha, Gerhard R., paper presented at U.S. Association for Small Business and Entrepreneurship annual conference, Baltimore, Maryland, October 1993)
Departmentation by function
Grouping activities by function is the most widely used form of departmentation. Similar activities are housed in a department or under a single chain of command. For example, sales, advertising, public relations, and promotion might be grouped in a marketing department; employee benefits, employee training and employee regulatory compliance may be housed in the human relations department and so on.
Functional departmentation takes advantage of employees’ specialization. Employees with similar training, education, skills, or equipment work together and under a supervisor responsible for that department's activities. Because one supervisor typically oversees a major area of activity, functional departmentation also facilitates coordination. For instance in a larger retail operation, one marketing department supervisor would control and coordinate the work of buyers, merchandisers and the sales force so that information and activities of each function would be more efficient and productive.
Exhibit
Department by function
Departmentation by function
Human Resources
The process or equipment used in producing a product or service may be the basis for determining departmental units. Since a certain amount of expertise or training is required to handle complicated processes or complex
machinery, activities that involve the use of specialized equipment may be grouped into a separate department.
This form of departmentation is similar to functional departmentation. The grouping of all milling machines into one department or the placing of lathes in another department is illustrative of departmentation by equipment or process. As a further example, a large food products firm may be departmentalized by processes such as manufacturing, package design, distribution, and shipping.3
Exhibit
Department by
process
Departmentation by process
Shipping
Departmentation by products
Companies with diversified product lines frequently create departmental units based on the product. To departmentalize on a product basis means to establish each major product in a product line as an independent unit within the overall structure of the company. For instance, retail stores may organize their operations to meet the needs of specific customer groups by forming special departments to cater to house wares, menswear, children’s clothing and so forth. Product departmentation can be a useful guide for
grouping activities in service businesses as well. Many banks have separate departments for mortgages, checking accounts and commercial loans.
Exhibit
Department by product
Commercial loans Consumer loans
Departmentation by product
Checking accounts
Departmentation by projects
Project organizations are specifically designed to deal with changing environments. A project in this sense is a series of related activities required to accomplish a work outcome, such as the development of a new product. Projects and task forces or teams are generally unique—designed to work on a nonrecurring project. They are tightly organized units under the direction of a manager with broad powers of authority.
A team is given a project with specific tasks or operational concerns. This team is composed of employees from the firm who have expertise or skills that can be applied directly to the project. The members of the team manage the project without direct supervision and assume responsibility for the results. When work teams function well, the need for a large number of supervisors decreases.
Departmentation by matrix
Some firms are organized by using a mix of departmentation types (matrix organization). It is not unusual to see firms that utilize the function and project organization combination. The same is true for process and project as well as other combinations. For instance, a large hospital could have an accounting department, surgery department, marketing department, and a satellite center project team that make up its organizational structure.
e Once the bases for departmentation are determined, another problem of structure immediately arises concerning how many departments or how many individual workers should be placed under the direction of one manager. This is referred to as a span of management or span of control issue. A number of factors should be considered when deciding upon a span of control:
o the complexity of the subordinates’ jobs and need for interaction with management
o the complexity of the supervisors’ jobs
o the competence of the supervisors and subordinates
o the number and nature of the supervisors’ other interactions with non-subordinates
o the extent to which staff assistants provide support.
Flat versus tall organizations
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editor: John Maynard (The University of Georgia, USA)
Contributors: Suzanne Barnett, Lydia Jones, Carol McDonell, Bernie Meineke, Tammy Segura (Georgia Small Business Development Center, USA)
Reviewer: Dr Gideon Markman (The University of Georgia, USA)
By definition, a small business is typically a flat, centralized organization. The founder/owner is the boss and makes all the critical decisions. However, as the personnel count grows, the firm’s structure typically expands either horizontally (flat) or vertically (tall). Again, various factors including the owner’s management style, might affect what type of structure a business assumes.
Flat organizations
Flat organizations follow the decentralized approach, or organic system. There are fewer levels of management which creates an environment for faster growth and response between all levels. Organizations that follow this type of structure have wider spans of supervisory control and have more horizontal communication. This type of structure promotes task interdependence with less attention to formal procedures.
More decisions are made at the middle levels of the organization. They are less bureaucratic and less structured. Externally, the organization as a whole becomes more adaptable to its market and can quickly react to changes. Internally, the organization as a whole encourages more participation
between all levels of the organization. As a result, all levels have the potential of working more closely together which enhances a closer working environment with better communication and creativity.
Exhibit
Salespeople
Tall organizations
Flat organization
A tall structure is a more formal, bureaucratic organization or mechanistic system. In this environment, multiple levels of management control decision making processes and employees within the organization. When numerous levels become involved in daily operations, decision-making tends to be more impersonal. Since this type of structure has more levels, the division of labor is much more specialized. Departments can become more compartmentalized, which increases the communication within them, but does not lend itself to communication with other departments.
Exhibit
CEO
Sen. VP - Marketing Sen. VP - Sen. VP - Finance Sen. VP - Human Manufacturing Resources
Accounting Manager Budget Manager Purchasing Manager
Purchasing VP
Tall organization
Centralized versus decentralized organizations
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editor: John Maynard (The University of Georgia, USA)
Contributors: Suzanne Barnett, Lydia Jones, Carol McDonell, Bernie Meineke, Tammy Segura (Georgia Small Business Development Center, USA)
Reviewer: Dr Gideon Markman (The University of Georgia, USA)
Communication is essential to disseminate information throughout organizations and can take place at many levels. There are two communication models that are utilized—centralized and decentralized. Again, each style can be effective depending on the environment and each has its advantages and disadvantages, as are outlined below.
Centralized
Centralized organizations require communications flow through a central person or location. Single leaders are prominent and have a great deal of decision-making power. These persons have access to more information and can therefore exercise a great deal of influence over group members by controlling the flow of critical information.
One disadvantage to centralized communication is that as the organization grows, the amount of information can overwhelm the central hub (person or department) that processes this information. One advantage to the centralized approach is that it encourages standardized processes that typically result in cost savings and better quality control.
Decentralized
Decentralized organizations tend to utilize many channels of information flow, allowing for more open communication between group members. This model is more conducive to solving complex problems.
One of the major advantages to decentralized communication is that problems and processes can be solved and changed in a timely manner. Also, the needs of customers and employees are more easily and quickly met because fewer levels of management are involved.
A major disadvantage to a decentralized organization is that departments can easily lose sight of the organization's common mission. To ensure organizations stay on task, upper management should maintain open lines of communication with local management.
Chapter summary
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editor: John Maynard (The University of Georgia, USA)
Contributors: Suzanne Barnett, Lydia Jones, Carol McDonell, Bernie Meineke, Tammy Segura (Georgia Small Business Development Center, USA)
Reviewer: Dr Gideon Markman (The University of Georgia, USA)
So how does an owner begin to digest and pick between all the choices (function, product, process, project or matrix structure, flat versus tall, centralized versus decentralized) available when it comes to organizing a business?
To design a better business, owners should take these steps:
e Schedule time to work on the business. This applies to start-ups and established businesses. There is an old saying, “If you are chopping wood, you need to take some time to sharpen the axe”.
e Write everything down. Document all job descriptions, processes, and procedures, and then refine the processes so the result is reliable and high quality output. In his book The E-Myth, Michael Gerber makes the case that entrepreneurs should build and document their business as if it were the first of 5,000 locations, even if they never plan to expand.
e Try to become unimportant to the day-to-day operations. A business that would cease if something happened to the owner has very little value to a potential buyer. If the business is a turn-key operation with
documented and reliable processes, it has much greater value to the current owner and future buyers.
e Be prepared to change roles as the business grows. As time goes on, the amount of time an owner spends working in the business should decrease. He or she should embrace the role of a CEO who is working on the business.
In the introduction of this chapter we likened the business owners’ role to a musician. In the early stages of the business, the owner had to play every instrument. But if the business is to grow and prosper, the owner must become the conductor of an evolving orchestra. If an orchestra has good musicians, excellent sheet music, and a talented conductor, the result is beautiful music.
Example:
US legal issues
Because laws regulating business vary greatly by country and locale, entrepreneurs should pick a legal entity for their business in consultation with a local attorney that specializes in business law. The legal issues discussed below reflect general practices in the United States where laws governing business vary not only by state, but by local jurisdictions within states.
Businesses activities are organized either by individuals, couples or groups of people.
Businesses with one owner (the most common and referred to as sole proprietorships in the United States) can be launched without any legal assistance, and depending on the location, with or without certain permits. Businesses with multiple owners typically write out explicit guidelines regarding investment and management issues using one of several types of legal agreements designed specifically for business organizations. Thus, one of the first decisions facing new business owners is deciding what legal entity to use for their business. That decision-making process typically weighs the following issues:
a. how much time or involvement in the business is required b. what skills are required
c. degree of risk associated with the business d. amount of capital needed e. tax regulations on labor and income earned by the business
In the United States, there are four basic types of business operations:
1. Sole proprietorships
A sole proprietorship is an individual owner of a business (with or without employees). This type of operation is the simplest to form, and the single owner, or sole proprietor, may work as much or as little time as desired. The sole proprietor is generally held accountable for all products and/or services produced by the business, as well as debts and liabilities of the business. Since the owner’s personal liability extends well beyond amounts invested in the business or even beyond assets purchased by the business, this type of operation is considered high risk.
The amount of capital required to start a sole proprietorship is generally minimal.
In addition to sole ownership of all assets and liabilities, the proprietor benefits by receiving all profits, which in the United States are taxed as part of the owner’s total personal income. The sole proprietor may employ workers or engage independent contractors to increase skills available, but the business ceases to exist upon the owner’s death.
A sole proprietor business can be organized at any time into a different legal entity. The owner often decides to reorganize when profits substantially increase the individual's tax liability.
. Partnership
When two or more family members or people join together in a business operation, they may choose to establish a partnership which can take the form of a general or limited liability partnership. General partnerships are similar to the combination of a group of sole proprietorships in that the partners share workloads, profits, and liabilities. Limited Liability Partnerships, however, usually include
one or more partners who manage daily operations and are generally liable for the debts of the business while other limited partners risk their investment in anticipation of profits.
Initial agreement is essential concerning how the partnership will operate, who will manage daily operations, how profits will be disbursed, and who assumes liabilities and debts. Such an agreement is normally formalized in writing and is known as a “Partnership Agreement”.
Partnerships, like sole proprietorships, are generally dissolved upon the death of a partner. Profits are shared in accordance with terms of the Partnership Agreement and reported to taxing authorities on personal tax returns of the partners.
. Corporations
In the United States, corporations are considered separate legal entities that are chartered and regulated by an authority in each state, such as the Secretary of State. Additionally, a separate agent who acts on behalf of the corporate entity is identified in the initial application process to receive legal notifications. Corporations must also submit identification and governing documents such as Articles of Incorporation and By-Laws. Corporate entities are generally required to be kept in active status through annual updates to a regulatory authority. As a result, this type of entity is deemed slightly more complex to form and manage.
Corporations require investment by one of more owners who are known as “shareholders” or “stockholders”, and the amount of investment varies depending on the needs of the business. Since this form of entity provides protection (widely known as the “corporate veil”) for the personal assets of owners against certain types of claims, it is generally of lower risk. Corporate entities may vary in numbers of owners from a single shareholder to an unlimited number. States and federal agencies regulate financial activities and reporting requirements that are categorized by the number of shareholders and whether their shares are available to purchase and sell on public stock
exchanges. For example, US corporations with publicly traded shares are regulated by the US Securities and Exchange Commission.
The corporation may employ workers and engage independent contractors as needed to increase skills available. Corporations are required, however, to acknowledge formally (in a written document) the individuals who are approved to engage in financial transactions on behalf of the entity.
In the United States, the Internal Revenue Service regulates federal tax codes. There are two taxing options for earnings of corporations: a progressive structure on profits for the traditional corporation and another that allows owners to “flow-through” profits to their personal tax returns.
. The Limited Liability Company (LLC)
In the United States, the Limited Liability Company (LLC) is the entity of choice for the owner or owners who prefer the limited liability afforded by a corporation and a tax treatment that allows profits to flow from the business to the owner or owners. The LLC must also be registered with a State authority, but requires less documented structure. Ownership is acknowledged by percentage as opposed to number of shares and protection for the owners is similar to that of a corporation.
Discussion questions
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editor: John Maynard (The University of Georgia, USA)
Contributors: Suzanne Barnett, Lydia Jones, Carol McDonell, Bernie Meineke, Tammy Segura (Georgia Small Business Development Center, USA)
Reviewer: Dr Gideon Markman (The University of Georgia, USA)
e Describe the characteristics of each of the four stages of growth a business organization might experience?
e Describe the advantages and disadvantages of a flat versus tall organizational structure.
e Given your personality and past experience, do you prefer working in a flat or tall organization and why?
e What are the characteristics of the four types of business legal entities?
References
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dcwill@cnx.org.
Editor: John Maynard (The University of Georgia, USA)
Contributors: Suzanne Barnett, Lydia Jones, Carol McDonell, Bernie Meineke, Tammy Segura (Georgia Small Business Development Center, USA)
Reviewer: Dr Gideon Markman (The University of Georgia, USA) Collins, Jim. (2001). Good To Great. HarperCollins, New York, NY.
Gerber, Michel E. (1995). E-Myth Revisited: Why Most Small Businesses Don't Work and What to Do About It. HarperCollins Publishers, Inc. New York, NY.
Learning objectives
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dewill@cnx.org.
Editor: Cynthia V Fukami (Daniels College of Business, University of Denver, USA)
Contributors: The students of MGMT 4340, Strategic Human Resource Management, Spring 2007
e to understand the field of Human Resource Management and its potential for creating and sustaining competitive advantage
¢ to understand how an organization can effectively recruit, manage, and terminate its employees.
e to know the basic approaches to creating effective reward systems through base pay, benefits, and pay for performance
e to understand the relationship between work design and employee motivation
e to show familiarity with mechanisms to create employee voice and influence
Competitive advantage through human resource management
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dewill@cnx.org.
Editor: Cynthia V Fukami (Daniels College of Business, University of Denver, USA)
Contributors: The students of MGMT 4340, Strategic Human Resource Management, Spring 2007
An introduction, by Cynthia V Fukami
A great deal of recent research has underscored the strategic advantage to be gained from managing employees as if they are assets rather than commodities. Consider the commodities a business employs—pads of paper, ballpoint pens—things that you purchase, use up, and then discard. Investing in a commodity is never considered—refilling a ballpoint pen, for a simple example—because it simply is not worth the expenditure of time and resources. A return on that investment is not expected. On the other hand, consider the assets employed in business—the physical plant, the equipment, and the money—things that are maintained and developed. When the paint peels on the office walls, one does not throw away the building and build a new one; a new coat of paint is sufficient. Making investments in a business’s assets makes a great deal of sense, because these investments will bring a return. A growing number of companies, recognizing that their employees are among their most valuable assets, are backing up that recognition with solid investment.
In an important recent book, Professor Jeffrey Pfeffer of Stanford University identified seven management practices that have been associated with producing sustained competitive advantage for the companies that have adopted them. These practices are: employment security, selective
hiring, self-managed teams with decentralized authority, high pay contingent on organizational performance, training, reduced status differences, and sharing information. Put together, these practices form the foundation of what is called a “high-commitment” or a “high-performance” management system.
The evidence on the results of implementing a high-commitment management system is striking and strong. Research has been conducted in many industries, from banking to automotive to semiconductors to service. Some research has focused on one industry while others have looked across industries. Some research has included companies from the United States and others have studied companies abroad. Overall, the conclusions of these studies are remarkably similar. High-commitment management systems produce higher organizational performance. Pfeffer summarizes the results into three categories. First, people work harder because they have more control over their work from the high-commitment management practices. Second, people work smarter because they have stronger skills and greater competence from the investments of high-commitment management practices. Third, companies save administrative overhead and the costs by reducing the alienation of their workforce and the adversarial relationship with management.
In a study of firms representing all major industries, Mark Huselid found that a one standard-deviation increased the use of high-commitment practices was associated with a 7.05 per cent decrease in employee turnover, a USD 27,044 per-employee increase in sales, USD 18,641 more in market value per employee, and USD 3,814 more in profits per employee. When he repeated the study several years later, he found that a similar increase in the use of high-commitment management practices was associated with a USD 41,000 increase in shareholder value per employee.
Another noteworthy study examined the management practices of initial public offerings or IPOs to see if there was a relationship between high- commitment management practices and the five-year survival rate of IPOs. This study concluded that the treatment of employees as assets and the use of stock options, profit sharing and gain sharing programs for all employees
(versus limiting the programs to key executives) were significantly related to the survival of the IPO to the five-year milestone.
These studies, and many others like them, have put conventional wisdom on its ear. Typically, we have assumed that success was related to factors such as size, or being global, or leading your market, or being in particular industries such as high tech, or pursuing a brilliant strategy. Yet, research shows there is virtually no connection between industry and success. As Wal-Mart and Southwest Airlines have shown us, an individual business can be very successful in a terrible industry. Similarly, there is little or no connection between success over time and company size or market dominance. Instead, competitive advantage comes from the way business is conducted, and employees are the keys to this. The most successful companies manage their workforce effectively as assets not commodities.
So why are more companies not adopting high-commitment management practices? Why are their executives proclaiming employees to be their most valuable assets, while continuing to treat them as commodities? Perhaps it is a continual cultural emphasis on short run performance and stock prices —an emphasis that makes it seem more profitable to lay off employees or to cut training when times are tough. Perhaps it is a preoccupation with systems that control rather than delegate. Perhaps it is our overwhelming tendency to teach future managers technical tools at the expense of people- management tools. Whatever the reasons, the challenge remains. If a business is able to meet that challenge, the odds are that competitive advantages will follow.
Providing employee voice and influence
Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronic textbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible via paper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the many who cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us at drexel@uga.edu and dewill@cnx.org.
Editor: Cynthia V Fukami (Daniels College of Business, University of Denver, USA)
Contributors: The students of MGMT 4340, Strategic Human Resource Management, Spring 2007
By Liz Evans
Employees are the resources of an organization in the same way as material assets but they are also the firm’s stakeholders. The concept of employees as stakeholders refers to the interest employees have in the success of the company and the fact that actions taken by the organization directly affect the employees (Olson, 2003). Employees’ stakes in the company are economic in the fact that their livelihood comes from the firm, psychological in that they derive pride from their work, and political in terms of their rights as employees and citizens. Though employees are the stakeholders who are arguably most visible to management on a day-to-day basis, they do not often command the majority of attention in terms of decision-making influences. The short-term, economic duties to stockholders often command more managerial attention in the decision making process than employee opinion (Peterson, 2005). According to Jones, the best way to incorporate employees' stake to improve firm performance is through employee participation and influence (Employees as Stakeholders, 1997).
Apart from unionization, employees can obtain influence in organizational decisions in several ways. Grievance and Due Process Systems allow employees to address grievances and to argue their point if they feel they
are wronged by management or another employee. Participation Systems provide employees with influence in the organizational or managerial decision making processes. This subchapter will discuss the ways employees are given voice and influence in non-unionized workplaces, with particular attention paid to influence in decision-making and organizational success. This will include the benefits of employee input to the firm, the difference between voice and influence, and the many participation mechanisms management can use to harness employee influence into decision-making.
There are benefits to a firm for providing employee influence. For one, strong employee voice and influence mechanisms are an important part of a High-Performance Human Resource System in which the human resources of the firm are coordinated and “designed to maximize the quality of human capital in the organization” (Becker & Huselid, 2001). Voice and influence mechanisms allow employees to give input and to contribute their expertise to business success; these mechanisms allow firms to get the most benefit from the skills of their human capital. Thus, firms with employee influence mechanisms get higher financial return from their employee assets; high-performance HR systems improve the financial bottom line of the firm (Becker & Huselid, 2001).
Despite the many benefits, there are various reasons not to implement voice and influence mechanisms perceived by employees and management. Voice and influence can benefit employees by helping them to protect their rights and most “employees want a voice in their workplace” (Peterson, 2005). However, employees may be hesitant to organize into employee associations or push for voice mechanisms for fear of retribution due to perceived opposition to influence by management (Peterson, 2005). Employers benefit from the increased trust that comes from sharing information and giving employees influence (Pfeffer & Viega, Putting People First for Organizational Success, 1998). However, managers who are used to having control often find it “disconcerting, difficult and even impossible” to share power in the form of influence in exchange for the many organizational benefits (Marken, 2004).
Voice and influence are different, but both are necessary to garner the benefits to the firm. Many managers recognize the importance of giving their employees a voice, but often this open communication does not result in authentic employee involvement or influence on the actual decision making process (Golan, 2003). Hearing employee voice is not the same as giving consideration to the received information; consideration is what gives employees influence in the organization (Garvin & Roberto, 2001). Visible action is as important to influence as consideration (Solnik, 2006). Action provides the follow up that allows management to make it apparent to employees that they have