Ch5 Flashcards
Entrepreneur
Innovators who start companies to pursue their ideas for a new product or service. People which vision, drive, and creativity, who are willing to take the risk of starting and managing a business to make a profit.
Classic entrepreneurs
Risk takers who start their own companies based on innovative ideas. They often start the business for personal satisfaction and the lifestyle.
Multipreneurs
Entrepreneurs who start a series of companies. They thrive on the challenge of building a business and watching it grow
Intrapreneurs
Entrepreneurs who don’t own their own companies but apply their creativity, vision, and risk taking within a large corporation. They enjoy the freedom to nurture their ideas and develop new products, while their employees provide regular salaries and financial backing.
Why become an entrepreneur
Entrepreneurs are found in all industries and have different motives for starting companies.
Characteristics of successful entrepreneurs
Ambitious: they are competitive and have a high need for achievement
Independent: individuals and self starters who prefer to lead rather than follow
Self confident: understand the challenges of starting and operating a business and are decisive and confident in their ability to solve problems
Risk takers: risk can be better than playing it safe
Visionary: ability to spot trends and act on them
Creative: bold marketing strategies, and innovative solutions to managerial problems
Energetic: takes long hours to start a new business
Passionate: love their work
Committed: willing to make personal sacrifices to achieve their goals
Getting started
Self assessment to determine whether you have the personal traits you need to succeed and if so, what business would be best for you.
Finding the idea
Starting a firm in a field where you have experience improves your chances of success. Or personal experience as a consumer.
Business model canvas
Helps refine and review the business model before moving towards a formal business plan
Elements of a business plan
- executive summary
- vision and mission statement
- company overview
- product and/or service plan
- marketing plan
- management plan
- operating plan
- financial plan
- appendix
Key features of a business plan
General description of the company, the qualifications of the owner(s), a description of the products of services, an analysis of the market (demand, supply, competition), sales and distribution channels, and a financial plan
Bootstrapping
Funding the operation with your own resources
Angel investors
Individual investors or groups of experienced investors who provide financing for start up businesses by investing their own money, often referred to as “seed capital.” Gives investors more flexibility.
Several questions one must ask when buying a small business
Why is the owner selling?
Does he or she want to retire or move on to a new
challenge, or are there problems with the business? Is the business operating at a profit?
If not, can this be corrected?
On what basis has the owner valued the company, and is it a fair price?
What are the owner’s plans after
selling the company?
Will he or she be available to provide assistance through the change of ownership of the business?
Common causes of business closure
Economic factors
Financial causes
Lack of experience
Personal reasons
Competitive advantage
Also called differential advantage is a set of unique features of a company and its products are perceived by the target market as significant and superior to those of the competition
Cost competitive advantage
Firm can produce a product or service at a lower cost than all its competitor while maintaining satisfactory profit margins.
Differential competitive advantage
More successful for long term viability of a company.
Niche competitive advantage
Targets and effectively serves a single segment of the market. Good for small companies
How can you grow a business
Market penetration
Geographic expansion
Product development
Diversification
Market penetration
Increases sales in current markets. Eg adding more locations
Geographic expansion
Expand into new locations, either foreign or domestic
Product development
Develop improved products. Eg. New models of the iPhone
Diversification
Enter a new business line or expand your product line into other areas.
Related diversification
A piano company introducing a line of electric pianos
Conglomerate diversification
Situation where a company has unrelated products lines such as motorbikes, boat engines, and audio equipment.
Merger
Occurs when two or more firms combine to form one new company.
Types of mergers and what they are
- horizontal merger: companies at the same stand in the same industry merge to reduce costs, expand profit offerings, or reduce competition.
- vertical merger: company buys a firm in its same industry, often involved in an earlier or later stage of the production or sales process.
- conglomerate merger: brings together companies in unrelated businesses to reduce risk.
Leveraged buyout (LBO)
Financially motivated type of merger. Corporate takeovers financed by large amounts of borrowed money.
Bankruptcy
Occurs when the business is no longer to pay its debts. The total debt is work more than the company’s assets or the company runs out of cash. If a company cannot pay its variable costs there is no way it can pay its fixed costs and therefore they go bankrupt and shut down the business.
Options to consider when taking money out of the company
- continuing to operate the business as is and collect dividends
- selling all or part of the business to someone else
- taking the company public
- Public companies
2. Private companies
- Traded on stock exchange
2. Owned by a limited number of shareholders
Dividends
Payments from the organization to the shareholders who own shares of the company’s stocks
Initial public offering (IPO)
Initial listings to sell shares of the company on the stock market
Divest
Sell a specific part of their company.
Securities markets
Streamline the purchase and sales activities of investors by allowing transactions to be made quickly and at a fair price
Primary market
New securities are sold to the public usually with the help of investment bankers
Secondary market
Where old (already issued) securities are bought, sold, or traded, among investors
Stock markets
New York stock exchange (NYSE) Toronto stock exchange (TSE) NASDAQ Hong Kong exchange (HKEX) Shanghai stock exchange (SSE)
Insider trading
Buy/selling of shares based on info that is not public, it is illegal.
