ENTREPRENEURSHIP BASICS FOR MBA

 

ENTREPRENEURSHIP BASICS FOR MBA

FINDING AN OPPORTUNITY

TESTING A NEW BUSINESS IDEA

FEASIBILITY ANALYSIS

MARKET ANALYSIS

FUNDS

 

One of the important things to know about entrepreneurship is that it's a personal journey. Entrepreneurship is about people: how you interact with them, make decisions, plan for the future, deal with conflict and so on.

All the decisions involved in starting growing and exiting a business, affect not only the business and the people associated with it but also the entrepreneur. This section helps you understand what entrepreneurial thinking is and identify if you're ready to think like an entrepreneur. And if you are, I give you several ideas to get you started.

Before we go any further however, we must agree on one thing: starting a business isn't for everyone. And thank goodness for that, because we do need some scientists, mathematicians, artists and Physicians to keep this world running. We're not trying to turn everyone into entrepreneurs but we do think that there's value in learning how to think like an entrepreneur. With that in mind, here are some characteristics of entrepreneurial thinking that are important to succeeding as an entrepreneur:

·        Entrepreneurs are comfortable with ambiguity and uncertainty.

They know that the best ideas come out of uncertainty and they know that there will always be unanswered questions. So they attempt to find answers for as many critical questions as possible while moving forward answering the rest as they go.

·        Entrepreneurs have self-discipline and tenacity.

In other words, they know how to focus on a task and stick to it through completion. That's why they succeed more than they fail.

·        Entrepreneurs aren't afraid to fail.

They understand that if you never fail at anything, you haven't taken any risks and taking risks is how you learn and grow a business.

·        Entrepreneurs believe that they alone control their destiny.

They know that if they screw up, they should look nowhere else but the mirror. But with this attitude, they also have the freedom to decide their future regardless of what the government or a competitor does.

·        Entrepreneurs focus on opportunity and innovation.

They strive to identify all the great opportunities out there: not only for products and services, but also for new ways of doing business, new marketing strategies and new distribution models. The more they network and take calculated risks, the more opportunity will come to them. This is nature's law and entrepreneurs practice it daily.

No two entrepreneurs are exactly alike, but in general these characteristics can be found in people who launch new companies.

 

FINDING AN OPPORTUNITY

How do entrepreneurs find great opportunities? Do they have a special talent that others don't have? Not really. They're simply creative in their thinking.

Entrepreneurship is a creative process, not a scientific one. It's chaotic not linear, in fact if you're a highly organized person who wakes up every day knowing exactly how your day will go, your chances of discovering a new opportunity will be very low. On the other hand, if your life is a bit more chaotic, things change every day and you're not stuck in any ruts, your chances of being more opportunistic are dramatically higher. Fortunately, everyone has at least some creative juices flowing. You just need to know how to activate the creativity so you can make it work for you.

This section focuses on uncovering the barriers to creativity and removing them so you can better identify opportunities and then act on them. People have plenty of excuses for not being creative but maybe that's because they see creativity only as invention: coming up with a totally new product or service. Although invention certainly is exciting. It's probably the least common way that business people express creativity. The following are a couple common barriers to creativity you may encounter.

1)     I have no time to be creative.

Sure, entrepreneurs are busy people. in fact, today everybody is bombarded with information from conversations with other people, email, the internet and their cell phones and everybody wants answers right now, no one wants to wait anymore because they assume that everyone is connected. It's also amazing how many people let others control their days by always being on call for 20 minutes every day.

Turn everything off and just listen to yourself at first. You won't know what to do, your mind will be racing about the things you think you should be doing. But eventually with a little practice, your mind will settle down and open up. And in time, you'll look forward to those 20 minutes especially after the first great business idea pops into your uncluttered mind give it a try.

2)     I have no confidence that I can do this.

It's much easier to take the path you already know than risk getting lost by trying One Less Traveled. But it's the path you don't know that may hold the creative opportunity you've been looking for. Often people are afraid to be creative or offer creative ideas because they don't want to be criticized. To build up your confidence, set some small goals and practice, practice, practice, removing the barriers to creativity.

Most entrepreneurs improve on a product or service or concept that already exists or they find a way to solve a problem they see or have experienced. You probably show this type of creativity every day: when was the last time you didn't have a hammer handy and you had to find a way to pound a nail. Perhaps you took off your shoe or used the book or some other hard object. That's creative thinking.

At work however, sometimes barriers pop up and you may not know how to get rid of them. You need to be proactive about becoming more creative and opportunistic. So get out your sledgehammer and start removing the barriers to creativity. This section helps:

·        Find your most creative environment.

Your chances of being creative increase when you're in the right environment. The environment in which you work can either stimulate or discourage creativity. For example: if your workplace has a rigid structure and military-like chain of command, it will be difficult to think out of the box, you're currently in one.

Study found that the place where people have the most creative ideas is the bathroom. Well when you think about it, it makes sense. You're typically by yourself and probably aren't accessible; the perfect environment for contemplation. The basic idea here is to find a quiet place without a lot of distraction. Think about where you were when you had your last great idea that may give you a clue as to the type of environment that encourages your creative juices.

·        Keep a journal.

Writing in a journal can be a great way to overcome your creative barriers. How many times have you said i'll have to remember to write this idea down, but by the time you get a pen and paper you've forgotten the idea. Keep a journal with you at all times so you can jot down those ideas, so you don't forget them. Remember, you really never know when you may get a great idea. Many people come up with exciting ideas in their dreams or when they're first waking up wouldn't it. Be wise to have a pen and paper near your bed so you don't lose those ideas.

·        Practice solving problems.

As we stated earlier, most new ideas are based on something that already exists and that's something that already exists may be a problem that needs to be solved. Problems in the marketplace are great sources of business opportunities.

·        Network your way to opportunity.

Business associates are the second most common source of new ideas after problems. Your network of business contacts is particularly useful when it includes people from a variety of different types of Industries. For example: a technology or method for producing a particular product may be familiar to you because you work in, say the Aerospace industry. You have a Network contact in the automobile industry and through discussions with that person, you discover that you may be able to take your Aerospace technology or method into the automobile industry as a new venture.

We're not suggesting that you steal ideas from the people you know, but you can let the conversations you have with your Associates open your mind to new ways of thinking about things. That's why it's so important not to hang around only with people like you. If your business, person go spend time with Scientists or artists, these people look at the world differently and have different problems and they may need someone like you, an entrepreneur, to solve them.

 

TESTING A NEW BUSINESS IDEA

From the moment you come up with a great business idea, the questions start: does anybody else think this is a great idea? Is there a way to make money at this? Where do i start? The best place to start is testing the idea in stages to make sure you're not the only person in the world who thinks it's a great idea. In this section I give you a strategy for tackling your new business idea.

What's the difference between an idea and an opportunity. An opportunity is an idea that has commercial potential. One way that you can turn an idea into an opportunity is by developing a business concept. Think of the business concept as an elevator pitch on a very fast elevator. Elevator pitch refers to the 30 seconds that an entrepreneur has to impress a potential investor. If you have only 30 seconds to talk about your business, you want to capture the investor's attention and convey the essentials in a clear and concise manner.

An effective business concept identifies the following four components: (1) the product or service you're offering the customer, (2) the person or business that will be paying you the benefit or value proposition, (3) what's in it for the customer, (4) the distribution or how you plan to deliver the benefit to the customer.

The following sections help you develop your business concept:

·        Define the product or service.

You need to make sure you know specifically what you're offering to the customer. Today the boundary between product and service business has all but disappeared as companies diversify their offerings so you may decide to offer both a product and a service related to that product. Of course that decision will depend on what your customer wants the actual design of your product or service should come from a deep understanding of the customer's needs and your team's capabilities remember.

·        Define your product or services competitive advantage in the marketplace.

In other words, how is your product or service different from what's already out there. Intellectual properties such as a patent or trade secret can offer a substantial competitive advantage. But an innovative process or marketing strategy can also help you stand out from the crowd.

·        Define the customer and benefit.

Many entrepreneurs get confused when they have to identify their customers and the potential benefits they'll provide those customers. That's because in many businesses the customer isn't the end user or beneficiary of the product or service. The trick is that you must satisfy the needs of your primary customer and make sure that the end user's needs are satisfied. As well remember customers buy benefits not features. The two were quite different features are the characteristics of the product or service. benefits are the intangible aspects that solve the customer's pain such as convenience health and saving time.

·        Define the distribution channel

You need to define your organization's distribution channel. When developing your business concept, the distribution channel is the way you'll deliver your value proposition to the customer. You can distribute your product or service and its benefit in a couple ways: directly to the customer such as through the internet or by providing a service indirectly through a distributor or retailer that sells your product these companies are called channel intermediaries. They provide their service so that the entrepreneur can concentrate on what he or she does best.

Which route you take depends on your customers expectations, how do your customers prefer to buy and the costs involved using intermediaries raises the price of the product to the end user, but may make it possible for the entrepreneur's company to grow faster reach more customers.

Researching the industry to discover what similar businesses are doing is critical to making a decision between the direct and indirect channels. Putting together a concept statement means that you now have a business opportunity that you can test.

 

FEASIBILITY ANALYSIS

One of the most important skills that an entrepreneur can acquire is the ability to conduct a feasibility analysis. Feasibility analysis tests the viability of a new business concept before you spend a lot of time and effort to prepare a business for launch. There's a lot of uncertainty in a startup business, feasibility analysis gives you a way to reduce some of that uncertainty and the associated risk which will help you and make potential investors happy.

The ultimate goal of the feasibility analysis is to assist the entrepreneur in thinking critically and answering fundamental questions about the business concept you want to achieve. A high level of confidence that the conditions are right to go forward and start your business.

The feasibility process doesn't have to be linear but it does help to start the analysis with the environment in which your business will operate. That environment is the industry which is a group of businesses that will form the value chain for your new venture, manufacturers, suppliers, distributors, retailers and so forth. These companies essentially represent your support network. Depending on the industry, it may also include government agencies, regulatory bodies and trade associations, to name just a few possibilities.

Remember, you want to understand the industry's size and where it is in its life cycle. Yes, industries go through a life cycle just like humans do birth, childhood, adolescence, adulthood, old age and death. Your industry stage in that cycle will affect your business strategy. For example:

·        An emerging industry early childhood is like the wild west every company for itself. Companies are pushing and shoving trying to grab their share of the industry and establish themselves as the industry standard in this type of industry. Tons of opportunities exist which is a lot of fun.

·        On the other hand, a very mature industry, old age typically, has major established companies that dominate and don't really want to see anything change. Here the only way for an entrepreneur to enter is by bringing something new to the industry. That's what happened when the internet changed the way many mature industries operate.

·        An industry in the growth stage of the life cycle means that a business will require a lot of capital and resources to sustain itself and it may be a target for acquisition by a much larger company.

 

MARKET ANALYSIS

If Industries are about value chain players, markets are about customers. If you don't understand the market, you're going to tap the customers in, it won't buy from you. You want to design a product or service that customers in the market will value. If you make a product or a service that you know customers want they'll have their credit cards ready.

When you are try saves you money on marketing, the best way to research a market is to get out into it and start talking to people, particularly customers. Without a doubt they'll help you figure out the best features and benefits for your product or service and they'll help you calculate how much demand exists. One or two customers isn't enough.

After you define your Target customer and your Market, you can start identifying potential competitors. Keep in mind that competitors aren't always obvious. Look for companies that have the same capabilities and expertise that your company has. Even if they're not serving your customers. With your products right now, there's no reason they couldn't do so after they see how successful you are.

You need to figure out what kinds of supplies and or raw materials are required to produce your product or service. and by the way, are you intending to manufacture in-house? probably not. So now you have to find companies that can do your production work for you that leads to another choice: do you manufacture domestically or follow the crowd to India and China.

Difficult decisions but that's why you network right and that's why you study your industry so you can learn what has worked for other businesses similar to yours.

 

FUNDS

Calculate how much money you need to start; how much money do you need to pull off your business concept. We hope as little as possible.

If you're thinking like an entrepreneur, what you want to find out during the feasibility analysis is how much cash you need to launch the business and operate it until the sales you generate. Produce a positive cash flow: you take in more than you spend. This isn't as easy as it sounds, because most entrepreneurs underestimate their expenses and overestimate their ability to generate sales. Here are some steps for conducting this testing phase of your business:

1)     Make a list of everything you'll need to have in place to start your business and then attach dollar values to each item. This is where having an experienced advisor gained by networking in the industry and searching on the internet comes into play.

2)     Forecast sales for the first two years, based on market research on your understanding of how customers will pay and from the experiences of similar businesses in your industry.

3)     Forecast the expense is required to operate the business.

4)     Create a cash flow statement that shows all your projected cash inflows and outflows just like your checkbox.

If you still have one along with the net cash flow for each month, run a cumulative net cash flow line below the monthly net cash flow line so that you can calculate the highest amount of cumulative negative cash flow that you generate. This can be frightening: negative cash flow means that you spend more cash than you took in from customers.

It's pretty common to experience a negative cash flow or loss in the first few months of a new business of you. Add that highest cumulative negative figure to the total of your startup expenses, you'll get a reasonable estimate of how much money you need to get your business up and running.