SOUTHERN ENTREPRENEURSHIP PROGRAM Master Teacher of Entrepreneurship (MTEnt) Program James B. Wilcox...

SOUTHERN ENTREPRENEURSHIP PROGRAM

Master Teacher of Entrepreneurship (MTEnt) ProgramJames B. WilcoxCenter for Economic and Entrepreneurship EducationThe University of Southern Mississippi

Overview of the Training Program Day 2 – The Competitive Advantage

The Building Blocks of Business Types of Businesses Return on Investment Supply and Demand Innovation and Entrepreneurship Developing a Competitive Strategy Customer Service Civic Responsibility Business Plan Review 30-Second Elevator Pitch Assessment

THE BUILDING BLOCKS OF BUSINESS

Cost of Goods Sold (COGS) and Profit Cost of Goods Sold – the direct cost of

producing and selling a good (minus non-allocated costs)

Profit = total revenue – (minus) total costs Gross profit = price (revenue) of goods sold –

(minus) cost of producing and selling the good, including fixed costs

Net profit = price (revenue) of goods sold – (minus) cost of producing and selling the good, including fixed costs and depreciation

Economics of One Unit of Sale (EOU) What is a “unit of sale”?

Retail – one item Manufacturing – one order Service – one hour of service time Wholesale – a dozen of one item Combination

Gross profit per unit (average) =price per unit – (minus) cost of producing and selling

one unit, including fixed costs Gross profit per customer (average) =

Average sale per customer – (minus) average cost per customer

Gross profit / (divided by) number of customers

Four Basic Business Types - Quantity Manufacturing – makes a product and

sells units in bulk Wholesale – buys units in bulk and sells

them in smaller quantities Retail – sells one unit at a time Service – sells intangible units

Topic Final Thoughts

Cost of labor in the EOU Cost associated with the sale of one unit

Going for volume Sometimes it is smarter to produce in volume

Becoming a business leader From labor to leadership Economies of scale Economies of scope

SELECTING YOUR BUSINESS

Listen to your market!

Product or Service?

Product – something that exists in nature or is made by human beings – tangible, can be touched

Service – work that provides time, skills, or expertise in exchange for money – intangible, and can’t be touched

Product or a Service?

Four Basic Business Types – P vs S Tangible or Intangible?

Manufacturing Wholesale Retail Service

Combinations?

Turning hobbies, skills, and interests into business – refer to Star Profile

Ethics of Conducting Business Not against the law Not hurtful toward others Not spread negative messages or ideas in

the marketplace

Ethica

l

Start-up Considerations

Naming your business Risks of using your name in the business

Money alone is not a good reason to start a business

How could your dream help the community? Senior projects for SEP students

What is the value of your time? $ and OC Entrepreneurs and philanthropy

100 business ideas for young entrepreneurs

QUALITY: THE SOURCE OF PROFIT

Quality

Quality – degree of excellence Profit comes from quality W. Edwards Deming – proposition that:

The quality of the product was the very essence of business

A business that focused on quality would be more profitable than a business that focused on only lowering costs

Mr. Deming Goes to Japan

The Japanese product Study what works

a. When people and organizations focus primarily on costs, costs tend to rise and quality declines over time.

b. However, when people and organizations focus primarily on quality, defined by the following ratio,

quality tends to increase and costs fall over time.

Why Quality is Actually Cheaper Don’t have to fix it Most valuable advertising possible

Word of mouth – meal, cell service, school, car

You earn customer loyalty Continuous Improvement Process

(Kaizen)

Start with quality

Quality Relationships

Treat suppliers and employees well Suppliers won’t be loyal to a company that

deals with them unfairly Employees won’t focus on continuous

improvement unless they feel good about their company

10 Ways to Improve Quality

1. Adopt a philosophy of continuous improvement2. Be consistent3. Do it right the first time4. Develop long-term relationships with suppliers

based on loyalty and trust even if it means not getting the lowest price every time

5. Focus on quality in production for yourself and your employees

6. Eliminate fear (change, confrontation, etc.)7. Don’t ask for perfect performance from your

employees or yourself – instead work smarter and better every day

8. Focus on the quality of what your business does, not the quantity

9. Quality is everyone’s job

SOLE PROPRIETORSHIPS AND PARTNERSHIPS

What is a Sole Proprietorship? Legal structure Liability Uncle Jim

What Is a Partnership?

Consists of two or more owners who make decisions for a business together and share the profits and losses

Partners bring different skills to a business Be cautious – have clear agreements on:

Money and intellectual property Ongoing responsibilities of each partner How decisions will be made How profits and expenses will be shared What happens if the business shuts down

Limited Partnership

Includes both: General partners who are personally

responsible and liable for the actions of the business

Limited partners who have a limited role or no role in managing the business and also have limited liability

Registering a Sole Proprietorship Necessary – state and local regulations

require registry Necessary for financing Business license

Registration Steps

Choose business name “Fictitious” business name

Fill out a “doing business as” (DBA) form with the name of the business and your name An official may conduct a name search

(SBDC) After the name is established, fill out a

registration form and pay a required fee May be asked to take the form to a notary

Registering a Partnership

Similar steps Additionally, partners should have a

partnership agreement between themselves

Permits, Licenses, and Certificates Permit – official document that gives you

the right to carry on a specific activity (Health, Zoning, Signage, Building)

License – an official document that gives you the right to engage in an activity for as long as the document is valid (Cosmetology, Alcohol, Real Estate)

Certificate – official document that verifies something

Laws and Regulations

Federal, state, and local laws and regulations

State tax identification number

Sole Proprietorship

Advantages Relatively easy to start up Business owner pays personal income tax

on earnings Fewer government regulations Make quick decisions and act without

interference Keeps all profits from the business

Sole Proprietorship

Disadvantages Difficult to raise enough money to start or

expand the business Must often put in long hours Unlimited personal legal liability No one to offer encouragement or feedback Only one stakeholder – limited ability to

share risk

Partnership

Advantages Partners can pool their resources Risk, long hours, and legal liabilities shared Different skills and contacts brought to the

business

Partnership

Disadvantages Profits shared Each partner is liable for the actions taken

by the business Disagreements among the partners can

destroy the business Partnerships can be difficult and unpleasant

to dissolve

MANUFACTURING: FROM IDEA TO PRODUCT

What is Manufacturing?

Manufacturing Make and sell products Moveable assembly line

The manufacturing process Starts with raw materials or parts and

transforms them into finished products Uses labor, machinery, or other tools

(including manufacturing plants)

Manufacturing Advantages

Can make a product that isn’t already on the market

Can fine-tune or add features to existing products

Can minimize or mitigate competition Take out patents on designs Be big enough to cover the market better

than new companies could

Manufacturing Disadvantages Expensive Need for space Costly to train and hire workers Complexity of product

What and Why?

Types of manufacturers Consumer products Industrial products Government & military contract products

Make or buy? Vertical integration Manufacturing and you

How? Steps in Development Process Ideas to design

Drawings and specifications Parts and materials lists

The prototype Getting ready for production

Tooling Setup costs

Getting help with your design Feedback (professional & market)

THE PRODUCTION / DISTRIBUTION CHAIN

Distribution

Manufacturer → wholesaler → retailer → consumer Production (upstream)/distribution (downstream) chain

A slow distribution channel can hurt your business Markups: prices increase at every link in the chain

Usually 25% to 100% Percentage markups

At a 25% markup per link, how much did the Manufacturer sell your $80 shoes for?

$51.20

Profit Margins

The relationship between price, gross profit, and cost Gross profit = Net sales – (minus) COGS Gross profit margin = (Gross profit /

(divided by) Net sales) * 100 Gross profit margin per unit Retail price

RETURN ON INVESTMENT

Investment

Definition: time, energy, money put into a business

Return on Investment (ROI) The money or profit gained with your

investment (paying it back) Calculated as net profit divided by

investment

Risk

Definition: chance of losing your money/investment

Risk/return relationship Rate of return – riskier investments should

earn higher rates Interest rate

Savings accounts Stocks & Bonds CDs and Money Markets

Small Business - High Risk/Return Small scale – won’t need as much profit to

get a high ROI Quick decision making – can solve

problems and meet customer needs faster than larger firms Implications go beyond the business world

Industry knowledge – if an expert, in a better position to spot warning signs and stay out of trouble

Lower operating costs – exchanged for sweat equity

Investing in Your Future

Goal setting Something you wish to accomplish in the

future Write them down (short, medium, long-

term) Stay focused

Going to college is the best investment you can make Who wants to be a millionaire?

The Time Value of Money

Invested money grows by compounding Rule of 72

Divide 72 by the interest rate to find the number of years it will take to double your money at a given return rate 10% 6% 2% 1% Your personal savings account

SUPPLY AND DEMAND

Free Market vs. Command Economy Free market vs. command economy

Free enterprise system – ownership Command economy – government sets

prices, tells people where they can work, and how much they can earn

A free market is more efficient than a command economy

Most economies are a mix Ownership is powerful Price communicates information

Demand and Supply

The laws of supply and demand help guide prices in a free market economy Using the laws of supply and demand to

predict behavior Supply and demand schedules

Price Considerations

The market clearing price – the price at which the number of products a customer is willing to buy and the number a seller is willing to sell match.

Competition keeps prices down and quality high

Competition vs. monopoly

INVENTIONS AND PRODUCT DEVELOPMENT

Creativity and Knowledge

Do you use your creativity? The entrepreneur is a market-minded artist Lateral thinking increases creativity

Inc. Magazine article Challenge assumptions to solve problems Research suggests intelligence can be

improved You have unique knowledge Your market

Mapping activity

Practical Daydreaming

Product development1. Play with possibilities2. Think of possible solution to problems in

your neighborhood, community, or even world

3. Make a model of the product4. Find out who might manufacture your

product – have a prototype madea. Models and Prototypes

5. Do a reality check Patents


Your task is to come up with an original product and an accompanying 30 second elevator pitch for this product/service.

You will have exactly 10 minutes to come up with your product and an additional 3 minutes to come up with your elevator pitch.

Remember to hit the 4 P’s and focus on the benefits rather than the features of your product.

You may also ask for an investment.


Investing in products Each participant will be given 3 poker chips

of the following values $20k $10k $5k

Each chip must be invested (diversification requires no more than one chip to be invested in a single venture)

Participants can (and are encouraged to) invest in their own team’s venture

Activity

10 Rubber bands 5 Cups 1 yard stick 10 feet of tape 10 straws 5 binder clips Post-It Notes

4 Ps “Cheat Sheet”1. Product2. Price3. Place4. Promotion

TECHNOLOGY: SCIENCE APPLIED TO BUSINESS

What is Technology?

Scientific knowledge that is applied to business and used by people

Computers

Create business cards Letters Presentations Keep records Flyers and posters List of customers Communicate with customers

Computer Software Programs Shareware – free programs www.MyBiz.am www.bizbuilder.com www.bizplans.com

Protect Your Computer’s Data Power outages and surges Computer viruses Disk failure

Internet

The Internet Websites Email Information

Going Online A phone line A cable line A DSL line – Digital Subscriber Line ISP – Internet Service Provider

The World Wide Web Hyperlinks URL’s – uniform resource locators – website

addresses

The Internet as a Business Opportunity Selling goods, services and information Selling advertising space Charging a subscription fee for those

wanting to visit your site – www.morningstar.com

Find the best deals Market your business Buy and sell

Online Resources

Email Electronic mail Free services – gmail, Hotmail, Yahoo Mail,

AOL, etc. Newsgroups

Public message boards that usually focus on a specific subject

PROTECTING INTELLECTUAL PROPERTY: YOUR IDEAS HAVE VALUE

Protecting Ideas

Turning ideas into intellectual property (IP) Stops people from using ideas Can use them to create a competitive

advantage or can be licensed or sold

4 Kinds of IP

1. Patents – protects inventions2. Copyrights – protects original work or

expression of ideas fixed in a tangible form

3. Trademarks – protects words, names, symbols, or designs that are used to identify the source of a product

4. Trade secrets – methods, formulas, or other kinds of information that have commercial value

3 Kinds of Patents

1. Utility patent 2. Design patent3. Plant patent

The next few slides describe these in more detail.

Utility Patent

May be granted for inventions or discoveries of any “new and useful process, machine, article of manufacture, or composition of matter, or any new useful improvement thereof.” To qualify, must satisfy certain conditions: Useful – identifiable purpose New – not already invented Non-obvious – would not be

obvious to somebody who hasordinary skill in the industry orarea of science or technology

Design and Plant Patents

Design patent – may be granted to anyone who invents a “new, original, and ornamental design for an article of manufacture.”

Plant patent – may be granted to anyone who invents or discovers and asexually reproduces any distinct variety of plant

Applying for a Patent

In-depth description of invention A drawing of the invention A completed “Declaration for Patent

Application” Notarized statement from the inventor(s)

to the effect that they are the original inventor(s) of the subject of application

The filing fee

Copyright ©

Protects art, music, plays, books, software Protects the original expression of ideas

when fixed in a tangible form Provides the creators of “original works of

authorship” with exclusive rights to do and authorize others to: Reproduce works Prepare derivative works Distribute copies of works Perform or display the works publicly

Obtaining Copyrights

How to obtain copyright protection Author(s) own it as soon as it is produced

Registering copyrights in the US Don’t need to register it to acquire a

copyright Can assign (transfer) some or all of the

rights to a work to another person Can license some of the rights

Electronic Rights / Digital Millennium Copyright Act Enacted in 1998 It is a crime to circumvent anti-piracy

measures built into commercial software Crime to manufacture, sell, or distribute code-

cracking devices that illegally copy software Internet service providers that transmit

information over the internet must remove material from users’ sites if it appears to be infringing on copyright

Webcasters must pay licensing fees to record companies

Trademarks Rights ™

Can put an ® next to the product name once it is federally registered

May be used to prevent others from using a similar mark, but not from making or selling the same product or services

Applying for a Trademark

A completed application form A drawing of the trademark Three specimens showing the actual use

of the mark on or in connection with your product or service

The filing fee

Using Someone’s IP

Ask permission Ask for license Offer to buy Pay someone to create IP for you as a

work for hire

Limits

What is “public domain”? Consists of ideas and their expression that

are not protected as IP What is fair use?

Educational purposes

COMPETITIVE STRATEGY: DEFINE YOUR BUSINESS, MISSION, AND TACTICS

Competitive Advantage as a Strategy What your business is about (business

definition) Why you expect to succeed in a

competitive marketplace Communicated in a mission statement Tactics – specific actions and activities

required to carry out your strategy

Detailed more on next few slides

Business Definition – 3 Elements1. The offer – what you will sell2. Target market3. Production and delivery capability

Must answer what, who, and how What will the business offer? Who will the business serve? How will the business provide the products

or services it offers?

Competitive Advantage

Competitive offers – compare to competitors

Unique selling proposition – what is unique?

Cost structure – is the cost of doing business different?

6 Sources of Competitive Advantage

1. Quality2. Price3. Location4. Selection5. Service6. Speed/turnaround

Is Your Competitive Advantage Strong Enough? Sell to a market that is large and

growing Sell to a market where the competition is

able to make a profit Sell where competition is succeeding but

not too strong Sell what fills a need Sell at an attractive price

Mission

Use your competitive advantage to satisfy your customers

Concisely communicate your strategy Tell customers and employees what your

business is about – earn their “buy-in”

Strategy Tactics

Sales plan – to identify and convert prospects into sales

Market communications plan – to communicate with customers

Operating plan – to manage internal operations

Budget – to manage expenses and revenues

CUSTOMER SERVICE

Customer Service

Has a very high ROI What is customer service? Repeat customers

Joe Girard’s “Law of 250” – 250 people important enough to invite to wedding or funeral, their 250 and so on Positive or negative

The Good in the Bad

Customer complaints are valuable Always acknowledge complaints and

criticisms Don’t overreact to negative remarks Always tell the truth about any negative

aspect of your product or service

Marketing

Customer service is marketing Customer service should be a source of

market research Include a short survey on a stamped

postcard with every item purchased Ask selected customers to fill out a longer

survey in the store and offer an incentive Always ask standard questions when

completing a sale

Database

Name Email Phone and fax Mailing address Date of last contact Comments or notes on last purchase or

request

Customers

Stay in touch with customers Ask customers to refer you to new

customers Lacing Again, Law of 250

SOCIALLY RESPONSIBLE BUSINESS AND PHILANTHROPY

Perspective

Trade, not aid Cause-related marketing

Demonstrates a commitment to a social, environmental, or political cause

Can instill loyalty Good way to differentiate your business

and achieve a triple bottom line as: A profitable business A business that improves society A business that protects the environment

Gaining Goodwill

Try to make a difference Donate money, products, or time

As an educator, take advantage of those who do!

Community reinvestment funds for projects, professionals for classroom visits, etc.

Nonprofit Organizations

Corporations whose mission is to contribute to the greater good of society

Work to improve social conditions

Teach for America / upromise Founded in 1991, Teach for America

recruits college graduates to become public school teachers in disadvantaged regions www.teachforamerica.org

upromise enables registered families to make purchases from supporting companies and have a percentage of their spending automatically go to a special savings account for college

Philanthropy

What is philanthropy? Give money through foundations

Entrepreneurs have built: Libraries, museums, universities, and other

institutions You have something to contribute

Work with nonprofits Donate income or profits Volunteer Offer a good/service at a reduced cost

Building Presentation Skills and Future Business Viability

BUSINESS PLAN REVIEW

In order for participants to feel comfortable with presenting their business plans, early on in the instruction, participants are encouraged (or required) to present their ideas for business.

Purpose

Over the course of the instruction, participants will present their plan multiple times.

Each time they present, constructive feedback will be given.

The purpose of the feedback is to assist them in the development of their plans and to gradually prepare them to present their plans for funding consideration.

Process

After writing up an initial business plan, participants are encouraged (or required) to present a 30-second elevator pitch on their business idea.

Time each participant’s presentation. Participants are stopped exactly at 30 seconds.

Step 1: The 30-Second Commercial

Participants are encouraged to focus on the 4 P’s of business. Product Price Place Promotion

Participants are encouraged to focus on the benefits rather than the features of the product/service.


Constructive feedback is given to participants on the basis of their presentations.

It may prove beneficial to video the presentations for later feedback. This should be done on the basis of access to the technology and participant needs.


The participants give a 3-minute business plan presentation consisting of the basics of their business.

Time each participant’s presentation. Participants are stopped exactly at 3 minutes.

The rubric for assessing the early presentation is also used in this format.

Step 2 – The 3-Minute Business Plan


Participants are encouraged to focus on the benefits rather than the features of the product/service.

Carefully review each business plan to insure that the high points of each category are addressed. The business plan’s competitive advantage and

marketing plan should be addressed in this presentation.


The participants give a 7-minute business plan presentation offering greater detail.

Time each participant’s presentation. Participants are stopped exactly at 7 minutes.

The rubric for assessing the early presentation is also used in this format.



Carefully review each business plan to insure that the majority of information contained in the business plan is addressed to some extent. The business plan’s core information should include:

Competitive advantage Marketing plan Financial projections and return on investment Management of the company


Utilization of experts/mentors in Business Plan Review

The Small Business Development Center’s role

Key experts’ feedback verses general feedback

Funders as reviewers Others?

Seeking Feedback

30-SECOND ELEVATOR PITCH

Master Teacher of Entrepreneurship

Summary/Review


Resources

Entrepreneurship – How to Start and Operate a Small Business, 10th Edition (2007)Steve Mariotti / National Foundation for Teaching

Entrepreneurship

Financial Fitness for Life – Teacher Guide, Grades 6-8Council on Economic Education

Questions?

Now is the time….

ASSESSMENT

Master Teacher of Entrepreneurship

SOUTHERN ENTREPRENEURSHIP PROGRAM Master Teacher of Entrepreneurship (MTEnt) Program James B. Wilcox...

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