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Transcript of 1 eSG Erasmus Project SimVenture deployment Business Simulation Games SimVenture accompanying...
1eSG Erasmus ProjectSimVenture deployment
Business Simulation GamesSimVenture accompanying material
ELIOS Lab
Prof. Alessandro De GloriaELIOS Lab - Dynatech – Univ. Genoa
2eSG project
SimVenture deployment
4 main areas
Sales and marketResearch
Market Competition Customer feedback
Marketing strategy Target segment Selling points Marketing promotions
Sales strategy Pricing Sales channels Customer support
Operation
Organization
Finance
3eSG project
SimVenture deployment
Research
Research is necessary to make good business decisions, in particular for a start-up
Basic, fundamental questions:How would you best describe the people who are most likely to buy your product or service?
What do you want to know from these people that will make it easier to sell your product or service to them?
How should you engage people so that you gather the information you need
Repeat this exercise if you have more than one market to aim at
Tip: don't conduct research with friends and relatives! Be objective!
4eSG project
SimVenture deployment
Research
Qualitative methodsIn-depth testing of prototypes
Small numbers of testers (5-10), longer interaction
Quantitative methodsExtensive surveys (huge numbers and statistics)
Possible questions: Price; product impressions; competitors; values; buying habits;
location and access; important features; communication with the market etc.
You are wise to work with a business advisor with appropriate experience or you can buy books on the subject.
The Market Research Society's website at www.mrs.org.uk/mrindustry/index.htm provides a wealth of invaluable data and advice.
5eSG project
SimVenture deployment
Research
1- Market research
2- Competition research
3- Customer feedback
6eSG project
SimVenture deployment
1- Market research
It is common to consider everyone as a potential customer
But this approach fails because specific meaningful messages cannot be targeted at specific people
By doing some research and segmenting your market you can tailor promotional activities and focus on one group to sell toThis process is called MARKETING
7eSG project
SimVenture deployment
Market research – key considerations
What factors can be used to identify segments?Location, buying power, product needs
Customers: social status, sex, age, interests
What is the target?What are the common characteristics? What are they looking for in a product? How many are they and where are they located? How can they be reached? What do they read/watch? How much are they prepared to pay?
How can you use this info?Identify the segments. Choose the best one to target. Make sure your product meets the specific needs (tailor your product)
How to get this info?Research agencies, but they may be too expensive for a start-up
Do it by yourself. Thinking
8eSG project
SimVenture deployment
2- Competition research
If you have a good product, but your competitor has a better one…
You need to know as much as possible about your competitors to give you the best chance in the market
Avoiding strong competition will improve your chances
9eSG project
SimVenture deployment
Competition research – key considerations
What do you need to know about your competitors?What are the strength and weaknesses of their products
How much do they charge
How do they market
What share of the market do they have
How to get this info?Publicly available resources
Friends
Pay a research company
How can you use this info?Find the gap in the market
Your product needs to be unique in the marketplace You must differentiate from the competitors
You need to satisfy the customers’ needs
Define your prices based on the competitors
Set sale targets
10eSG project
SimVenture deployment
2- Customer feedback
You must listen your customers
Creating an effective questionnaire is not easy
Asking wrong questions
Badly interpreting the answers
11eSG project
SimVenture deployment
Customer feedback – key considerations
What do you need to know from your customers?What do they think of your product? Strength and weaknesses? What would they like to change? Where did they hear about your company? What do they think of your competitors? What advertising media do they see? How often do they buy and how much do they spend?
How can you use this info?Refine your product
Improve market strategy
Plan for the future by understanding your customers’ buying patterns
Anticipate threats by competitors and exploit opportunities
Choose the right price
How to get this info?Pay a research company
Ask people to complete a questionnaire
Invite people to an event and get their feedback
Internet/phone
12eSG project
SimVenture deployment
Marketing strategy
1- Target segment
2- Selling points
3- Marketing promotions
13eSG project
SimVenture deployment
1- Target segment
Choose the target market for your marketing campaign
Exploit your market research data
Key considerationsWhat do customers want?Product design, selling points should follow from this
What price will they pay?
Size of the potential market?To help forecast sales and understand cash movements
How to reach them?
Competitors in the segment?It’s better to find a niche…
14eSG project
SimVenture deployment
2- Selling points
To persuade people to buy your product you must communicate clearly the benefits of making the purchase
Selling points (or Unique Selling Propositions)
What candidates?Quality, performance, features, price
Delivery, methods of payment
Company experience
Choice criteria?Depends on the target audience
Exploit customer feedback
How many points?Trade-off between accuracy and effectiveness
The more you differentiate, the more you stand out from competition, but you may reduce the impact of your message (customers are more likely to read short and simple messages)
15eSG project
SimVenture deployment
3- Marketing promotions
Communicate what you offer to your potential customers
Key considerationsHow much does the promotion cost?
Who will it reach?Aim at the right target
How effective is the message?Good presentation
TimelinessWhen will they have effect?
How often can it be repeatedAlso message reinforced (e.g., phone call after an
email)
16eSG project
SimVenture deployment
Sales strategy
1- Pricing
2- Sales channels
3- Customer support
17eSG project
SimVenture deployment
1- Pricing
Make profit and attract customers
If necessary use sale promotions and discounts
What is the lowest price you can afford?The cost of producing each unit of product
But you have also to consider the fixed costs in the business
What is the highest price your customers might pay?The higher your price, the more potential customers you exclude
What are your competitors’ prices?
How does the pricing affect the customers’ perception of your product?
Lower prices could be perceived as lower quality
Use of sale promotions?Number of sales could be more important than the profit, sometimes, for short periods
Sell off old stock, increase market share, counter a competitor’s promotion
18eSG project
SimVenture deployment
2- Sales channels
Choose the best way to get your product out into the market
How much does it cost?Set-up (overhead) and implementation (cost of sale)
Time and effort needed?
How much of the selling price will you get?Consider also possible cost reductions or revenue increase
What channels do your potential customers normally use?
What channels are open to you?A major distributor will consider only referenced products
Shop retail works with the right premises
19eSG project
SimVenture deployment
3- Customer support
If you want to retain your customers and avoid bad reputation..
Key considerationsWhat type of support do they needInstallation, failuers
When is help needed and for how long?
Can you charge extra?Adding value like this is a common practice
Reputation will suffer if you say that support is a selling point and it does not work well
Can you help customers to help themselves?Forums, knolwedge databases, good documentation
20eSG project
SimVenture deployment
Area 2 - Operations
Product design
Purchasing
Production
Quality
21eSG project
SimVenture deployment
Product design
Give customers what they want
Choose the right mix of product attributes whilst keeping costs down
What do your customers want?Market research
How long does it take to design?You need to predict where your business will be when the design is complete
How much does it cost?Giving customers what they want makes no sense if the production costs make a loss
What else will be affected by a redesignImpact on sales, marketing, support and packaging
Other issuesHow often redesign?
22eSG project
SimVenture deployment
Purchasing
Find the right supplier
How much do you have to pay?
Payment termsE.g., credit terms (avoid paying before you are paid by the customer)
Good relationships
Reliability: right goods, time, quality
Discount for bulk buying
23eSG project
SimVenture deployment
Production
How to produce
How much stock to keep?Less delay in availability
Ties up vital cash that might be needed elsewhere
How many to produce?Batch production
Efficiency + May not fit your orders - Keep stock - Bulk buying +
Who produces?Outsourcing?
Make on your own may make it easier to satisfy orders promptly
24eSG project
SimVenture deployment
Quality
Monitor your products’ reliability to attain a high level of quality
Check your product/service to identify defects before supplying to the customer
Prevent faulty products going out the door Bad reputation
Highlight problems in the production process which causes such failures
How is it done?Random testing
Check a proportion
Inspection Visual check for obvious damages
Soak testing Extensive time for every product
25eSG project
SimVenture deployment
Area 3 - Organization
Create a stable platform for your business to flourish
Typically, long-term decisionsWeigh up your options carefully
For a small business, staying flexible is often the most important principle
3 sub-areasPremises
People
Legal
26eSG project
SimVenture deployment
Premises
Get the best mix of space, location, facilities and value
Equip with the resources
Choose the services you need
27eSG project
SimVenture deployment
1- Location
Try to ensure your premises project an image that is consistent with your product
Spaces:Storage, receprion, rest areas, services
Where:A good location may expose you to many more potential customers, portray a stronger image
Too far places may deter them
What terms?Lease is good to spare cash, but you may have limitations in extension and use
Facilities included in the priceA lot of services needed for a start-up (e.g., receptionist, photocopiers, etc.)
Managed premises may provide these for a fixed cost
Effects of relocation?
28eSG project
SimVenture deployment
2- Resources
What?Equipment
Furniture
Transport
Tools
What effect on your business?
How to pay?Equipment can be hired
Vehicles can be paid for over a period of timeThis costs you more, in the long-term
29eSG project
SimVenture deployment
People
1- Business owner40 hours usally. But a business owner may take much more (80)
What are the risks of working too hard?StressDemotivationLess effectivenessIll healthFamily/social life affected
Be conservative: assume you need more than less
Make sure you achieve your earning target
30eSG project
SimVenture deployment
Training
How much does it cost?Usually, the more you pay, the quicker you learn (not always true)
How long does it take?Make decisions that meet the needs of your business
How much time will be lost?DVD-Course, vs. real teacher
How many people need the training?
Where and when?Near your premises is more effective
31eSG project
SimVenture deployment
Recruitment
How to find perspective candidates?Own advertising vs. agency advertising
Who do you interview?An agency may filter better through CV scouting (not everything in a CV is as it seems)
InterviewSkills, background, aspirations and personality
Check the CV
Sell them the job, giving info and answering questions
What can you offer them?Not only money
Career path, training in new skills, flexible hours, autonomy
32eSG project
SimVenture deployment
Management
Allocate responsibilities to your staff
Primary, secondary, reserve, never
Tasks:Design, recruitment, training, finance, sales, marketing, etc.
Staff skills:Production, writing, research, business mgmt, marketing, sales, etc.
33eSG project
SimVenture deployment
Legal
Set up a Limited CompanyYou can start without, but you’ll need quite soon
Health & safetyUndertake a risk assessment of your premises
Check all H&S issues are considered
Contract lawTo provide to customers
Also to protect you
Employment lawPay, disipline, hours of work, maternity,time off-work etc.
Use a professional to have advice and guidance
34eSG project
SimVenture deployment
Finance
Raising money
Banking
Forecasting
Accounting
Credit Control
35eSG project
SimVenture deployment
Raising money
Bank loansDecision parametersAmountPeriodInterests
Can you offer security?The process of arranging the loan will be much smoother…
What flexibility do you need?Close earlier, take a payment holiday…
How much do you need?Borrow enough at the start…
How long do you need?The longer you take to pay back the loan, the more interests you will pay
36eSG project
SimVenture deployment
Raising money
Friends and familyThe same parameters as for a bank
Do you all understand the risk?
37eSG project
SimVenture deployment
Raising money
Bank overdraftAimed for you to handle short-term borrowing needs (while loans are more for long-term)
A business-plan needs to be presented with a realistic forecast of future sales, costs, thus profits
An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be "overdrawn". If there is a prior agreement with the account provider for an overdraft, and the amount overdrawn is within the authorized overdraft limit, then interest is normally charged at the agreed rate. If the negative balance exceeds the agreed terms, additional fees may be charged.
38eSG project
SimVenture deployment
Raising money
Selling equity (shares)
What is the company worth?
How much are you willing to give away?Some investors want to be involved in the running of the business
They may bring vital skills you don’t have
Investors are here to make moneyWhat do you offer them?
How to find investors?Networks of business angels are specialized in very small businesses
39eSG project
SimVenture deployment
Raising money
Grants
Many companies are not aware of the aid that is available to help them get off the ground…
QualificationsTypically: new businesses, the young, disadvantaged areas
Who offers grants?Government agencies, charitable organizations
What can they be used for?Normally they are specificaklly purposed: training, R&D
Application process can be lengthy and with no guarantee of success
40eSG project
SimVenture deployment
Banking
Set up a bank accountWhy needed?
To pay and get paid
Earn interests (vs. inflation)
To get an overdraft – short-term borrowing – or loans
CostsFixed or variable
41eSG project
SimVenture deployment
Forecasting
Predict future activity in order to anticipate problems before they occur
It’s better to make a series of educated guesses
Sales targetsEstimate future sales, based on research
BudgetsEstimate costs for different areas of your business
Profit forecastTotal sales for the predicted period minus production and fixed costs
Cashflow forecastSimilar to profit/loss, but calculations are based on when money changes hands
42eSG project
SimVenture deployment
Forecasting
Predict future activity in order to anticipate problems before they occur
It’s better to make a series of educated guesses
Sales targetsEstimate future sales, based on research
BudgetsEstimate costs for different areas of your business
Profit forecastTotal sales for the predicted period minus production and fixed costs
Cashflow forecastSimilar to profit/loss, but calculations are based on when money changes hands
43eSG project
SimVenture deployment
Sales targets
Necessary to generate a profit or cashflow forecast
You can anticipate problems and correct them before they become critical
Not easy.. The more established you are, the easier it becomes, as you can exploit historical data
Without them, you can use research and marketing/sales strategies. Better to be conservative…
Review the targets against actual results, in order to update the forecasts and see whether you need to change the sales activity
44eSG project
SimVenture deployment
Budgets
Estimate your future spending in the main categories of expenditure over forthcoming months
It is wise to add a little bit of contingency to each expenditure category for unforeseen expenditures
Necessary for financial forecasts (profitability and cashflow) and to check if you are spending too much
Fixed and variable costs (depending on production)
Frequent checks. If you spend too much, try and reduce your spending or update the prediction figures
45eSG project
SimVenture deployment
Profit & Loss forecast
Compare predictions for income and expenditure (diffeerent categories of costs) over a period of several months
It is not concerned when the payment is made, only when the cost was incurred
Profitability is needed for a business to survive. You cannot make continual losses
If the forecast profit is low, you need to improve the situation
Remember that profitability is meaningful only over the long-term. So, watch the trend over 6 months to 1 year
46eSG project
SimVenture deployment
Cashflow forecast
Perhaps the biggest problem that faces a small business
You may be well in profit and still fail because you run out of your most precious resource: money
A monthly estimate of how money will enter and leave your bank account
Prediction is a vital exercise that needs to be done regularly
You should avoid below 0 (or agreed overdraft limit). Check when you can make bonuses or investments
47eSG project
SimVenture deployment
Accounts
BookkeepingRecord your business transactions to provide the raw data for accounts
“Double entry” “Partita doppia” because each payment is entered twice, once for the category and once for the account affected
48eSG project
SimVenture deployment
Accounts
Profit & loss reportReview the profit made by the company to determine how successful it is
When the money changes hands is not considered
If a sale is agreed or a cost incurred in that month, it is duly reported
Some things do not affect profitLoans or equity inputs to the business
Repayments on loans (except interest)
Only affect balance sheet and cashflow
Compare the profit report with the profit forecast and adjust forecasts accordingly
49eSG project
SimVenture deployment
Accounts
CashflowMovement of cash in and out of your businessWhen money changes hands, rather than when the cost is
incurredThis becomes an issue when custmers pay an account
(payment after 7-30-60-90 days)
When you run out of money, the company cannot operate and you will be out of business
This is why forecasting is essential
What can you learn from the cashflow report?The effect of late payers, how much you might need to borrow, seasonal variations, causes of big cashflow swing
50eSG project
SimVenture deployment
Accounts
Balance sheetMeasure the value of the company’s tangible assets and liabilities (attivo e passivo)
It takes no account of intangible assets like brands and future earnings
Amount owed to creditors
Value of asssets can be used by lenders and investors before putting money into the business
The final figure does not represent the worth (market value) of a company – this would involve also potential future performance
51eSG project
SimVenture deployment
Accounts
Balance sheetCombination of long term and short term assets
Fixed assetsEquipment. Take the purchase price and depreciate them among each year
Current assetsTotal money owed to the business (debtors), cash in the bank, value of stock on hand
Current liabilitiesAnything outstanding to your suppliers (creditors)
Long-term liabilitiesValue of any loans outstanding
52eSG project
SimVenture deployment
Other financial measurements
Assess the health of your business in a variety of ways
Return on Capital employedCurrent assets (cash, debtors, stock) / current liabilities (creditors, overdrafts)
Liquidity of a company. Should be around 1.5. Below 1 is in danger
Current ratioNet profit / capital employed x 100%
Profitability: should be higher than savings accounts
GearingLong term loans / capital employed x 100%
A measure of risk for an investor
Asset turnoverSales turnover / net assets
Volume di affari. A measure of how well the company’s assets are being used to generate sales
53eSG project
SimVenture deployment
Credit control
Monitor customers who owe money and adopt a strategy for late payment
Is your debtor even aware of being late?
Being understanding (of your debtor needs) might be a good choice
Start slowly and politely, and gradually ramp up the pressure
Is the payment worth chasing?A company that has no money is unlikely to pay you
Possible choices?Mail, phone call, threaten legal action, debt collection agency