Entrepreneurship

Entrepreneurship

Mr. Mazen S. H. Elsayed

Palestinian Community Assistance Program

Principles of Entrepreneurship

Contents

1 Introduction - What is Entrepreneurship?

2 What are Investors Looking For?

The Three crucial components for a
3 successful new business

Ingredients for a Successful New
4 Business

Introduction (1/2)

• After finishing your graduation you will be
at the crossroads of life:
– Career in your own business
[YOB] “Entrepreneurship”
– wage employment
[JOB]

Introduction (2/2)

Difference between Wage Employment and Entrepreneurship

What is Entrepreneurship??

• The Entrepreneurial Process includes all
the functions, activities, and actions that
are part of perceiving opportunities and
creating organizations to pursue them.
– An Entrepreneur is
someone who perceives
an opportunity and creates
an organization to pursue it.

Critical Factors for Starting a
New Enterprise

What about having a QUIZ??

A model of the entrepreneurial process

New Enterprise (1/3)
1. Personal Attributes
– A higher need for achievement.
– A higher internal locus of control.
– Independence
– Financial success
– Self-realization
– Recognition
– Innovation

1. Environmental Factors:
– Silicon Valley FEVER
– Entrepreneur genetics !!

1. Sociological Factors
– Family Responsibilities.

– Experience
VS.
Optimism and Energy

Evaluating Opportunities for
New Businesses
• How should you evaluate the prospects of
starting a new Business??
– USA: only 1 business in 10 will ever reach its
10th birthday.
• This is because they are
started as part-time pursuits
and are never intended to
become full-time businesses.

successful new business (1/8)

• The crucial ingredients for entrepreneurial
success are a superb-entrepreneur
with a first-rate management team
and an excellent market
opportunity.
• In entrepreneurship, as in
any other profession, Luck
is where preparation and
opportunity meet.

1. The Opportunity:
– The biggest misconception about an idea for
a new business is that it must be unique.
• If you have a unique idea, you become super-
secretive, reluctant to discuss it
with anyone who doesn’t sign a
nondisclosure agreement.
• That makes it almost impossible to
evaluate the idea.

1. The Opportunity (Cont.):
– The idea in itself is not
what is important.
– Developing the idea,
implementing it, and
building a successful
business are the
important things.

• The Customer:
– Would-be entrepreneurs who are unable to
name a customer are not ready to start a
business.
– They have found an idea but
have not yet identified a
market need.

• The Timing:
– In some emerging industries, there is a
definite window of opportunity that opens only
once.
– Most entrepreneurs should
avoid these kind of opportunities
• they will rush to open their
business, lead to costly mistakes.

1. The Entrepreneur and the Management
Team:
– Opportunity will not become
a successful business without
strong entrepreneurial and
management skills.
a. Experience in the same industry.
b. management experience.

1. Resources:
– Entrepreneurial frugality requires:
• Low overhead.
• High productivity.
• Minimal ownership of
capital assets.

Ingredients for a Successful
New Business
• Founders: Every startup company must have a
first-class entrepreneur.
• Focused: Entrepreneurial companies focus on
niche markets.
• Fast & Flexible: They make decisions quickly and
implement them swiftly. They keep an open mind.
• Forever-innovating: They are tireless innovators.
• Flat: Entrepreneurial organizations
have as few layers of management as
possible.
• Frugal: By keeping overhead low
and productivity high.

Contents

1 How Do I Come Up with a Good Idea?

2 Is Your Idea an Opportunity?

How Do I Come Up with a Good
Idea? (1/2)
• Finding your passion:
– Launching an entrepreneurial venture takes a
tremendous amount of time and energy, and
you will have difficulty sustaining that level of
energy if you aren’t passionate about
the business.
• about all the things that give you
joy.
• Ask your Friends (they know you
better!!)

How Do I Come Up with a Good
Idea? (2/2)
• Idea Multiplication
– Moving from seed idea to something that is
robust, exciting, and powerful.
• cocktail-party entrepreneur is all talk and no action.
1.Gather Stimuli.
2.Multiply Stimuli: Brain-Writing.
3.Create Customer Concepts: build a simple mock-
up of what the product will look like.
4.Optimize Practicality: identify those
features that are unnecessary,
impractical, or simply too expensive

Is Your Idea an Opportunity?
(1/5)
• five major areas you need to fully
understand prior to your launch:

(2/5)
• The Customer:
– Who is your core customer?
1. Primary target audience (PTA):
most likely to buy at a price that
preserves your margins and with a
frequency that reaches your target
revenues.
2. Secondary target audience (STA):
part of your growth strategy.
3. Tertiary target audience (TTA).
– Trends: spot trends that are
currently influencing customer
buying behavior and that might
influence it in the future.

S-curve and Product Acceptance

(3/5)
• The Customer (Cont.):
– Frequency and Price: how often our average
customer buys our product or service and
how much he or she is willing to pay.
• Don’t use a penetration-pricing strategy.
• Use cost-plus pricing.

Cost-Pluss Pricing (1/2)

• Converting markup to gross margin

– Markup = 100% = 1

– Markup = 66.7% = 0.667

Cost-Pluss Pricing (2/2)

• Converting gross margin to markup

– Gross margin = 50% = 0.5

– Gross margin = 40% = 0.4

(4/5)
• The Competition:
– How is the customer currently fulfilling the need
or want you intend to fill?
• Direct competitors.
• Indirect competitors.
• Substitutes.
– The good news is that many times
strong competitors won’t bother with new
startups.
– How to know your competitors:
• Ask suppliers.
• Professional investors.

(5/5)
• Suppliers and vendors:
– suppliers can have tremendous power, and
that will directly affect your margins.
• The Government:
– Tax
– Time for registering a new business.
• The Global Environment.

Introduction to business models

• A business model describes the
rationale of how an organization
creates, delivers, and captures
value.
• Consists of two components:
– The Revenue Model: breaks down all the
sources of revenue that your business will
generate.
– The Cost Model: identifies how you are
spending your resources to make money

The Revenue Model

• Breaking down the revenue sources
into categories.
• Different revenue categories often
require variations on the firm’s central
strategy to achieve the highest possible
outcomes
– influenced by ‘‘drivers’’ that are directly correlated
with the level of revenues the company earns.
– If you don’t fully understand your revenue drivers,
you won’t achieve the greatest success.

The Cost Model

• A firm needs to spend money to influence the
revenue drivers.
• Includes two primary categories:
– Cost of goods sold (COGS):
represents costs directly associated
with the revenue source.
– Operating costs: like
advertisements, Rapid delivery.
• Until having a full understanding
of the business model required,
it is difficult to move on to tactics
to implement that strategy.

The First-Mover Myth

• To capture a first-mover advantage:
1. You have to be first (or very early) into the
market.
2. You need to capture a large percentage of
the market quickly (fast growth).
3. You need to create switching costs so the
customer will stick with you.

Formulating a Winning
Strategy
  Exercise  

Contents

1 Definition of Business Model

2 The 9 Building Blocks

Business Model Definition

A Business Model describes the rationale


of how an organization creates, delivers,
and captures Value.

The 9 Building Blocks
We believe a business model can best be
described through nine basic building blocks
that show the logic of how a company intends
to make money.
They cover the four main areas of a business:

(1) Customers
(2) Offer
(3) Infrastructure
(4) Financial Viability.

1- Customer Segments (1/3)

It defines the different groups of


people or organizations an
enterprise aims to reach and
serve.
 For whom are we creating
value?
 Who are our most important
customers?

Customer groups represent separate segments if:


 Their needs require and justify a distinct
offer.
 They are reached through different
Distribution Channels.
 They require different types of relationships.
 They have substantially different
profitabilities.
 They are willing to pay for different aspects
of the offer.


There are different types of Customer Segments:


 Mass market
 Niche market
 Segmented
 Diversified
 Multi-sided platforms
(or multi-sided markets)

2- Value Propositions (1/2)

It describes the bundle of products and services


that create value for a specific Customer
Segment
 What value do we deliver to the customer?
 Which one of our customer’s problems are
we helping to solve?
 Which customer needs are we satisfying?
 What bundles of products and services are
we offering to each Customer Segment?

2- Value Propositions (2/2)

Elements from the following non-exhaustive list


can contribute to customer value creation:

* Newness * Performance
* Customization * Accessibility
* Design * Brand/status
* Price * Cost reduction
* Risk reduction * “Getting the job done”
* Convenience/usability

3- Channels
It describes how a company communicates with


and reaches its Customer Segments to deliver a
Value Proposition.

4- Customer Relationships (1/2)

It describes the types of relationships a company
establishes with specific Customer Segments.
Customer relationships may be driven by the

following motivations:
 Customer acquisition
 Customer retention
 Boosting sales (upselling)

4- Customer Relationships (2/2)

We can distinguish between several categories


of Customer Relationships:
 Personal assistance
 Dedicated personal assistance
 Self-service
 Automated services
 Communities
 Co-creation

5- Revenue Streams (1/3)

It represents the cash a company generates
from each Customer Segment (costs must be
subtracted from revenues to create earnings).
A business model can involve two different types

of Revenue Streams:
1.Transaction revenues resulting from one-time customer
payments
2. Recurring revenues resulting from ongoing payments to
either deliver a Value Proposition to customers or
provide post-purchase customer support.

5- Revenue Streams (2/3)

There are several ways to generate Revenue


Streams:
 Asset sale
 Usage fee
 Subscription fees
 Lending/Renting/Leasing
 Licensing
 Brokerage fees
 Advertising

6- Key Resources

It describes the most important assets required
to make a business model work.
Key Resources can be categorized as follows:

 Physical
 Intellectual
 Human
 Financial

7- Key Activities

It describes the most important things a
company must do to make its business model
work.
Key Activities can be categorized as follows:

 Production
 Problem
solving
 Platform/
network

8- Key Partnerships (1/2)

It describes the network of suppliers
and partners that make the business
model work.
It can be useful to distinguish between
three motivations for creating
partnerships:
 Optimization and economy of scale
 Reduction of risk and uncertainty
 Acquisition of particular resources and activities

8- Key Partnerships (2/2)

We can distinguish between four different types


of partnerships:
1. Strategic alliances between
non-competitors
2. Strategic partnerships
between competitors
3. Joint ventures to
develop new businesses
4. Buyer-supplier relationships

9- Cost Structure (1/2)

It describes all costs incurred to operate a
business model.
It can be useful to distinguish between two broad

classes of business model Cost Structures:
 Cost-driven
 Value-driven

9- Cost Structure (2/2)

Cost Structures can have the following


characteristics:
 Fixed costs
 Variable costs
 Economies of scale
 Economies of scope

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