BDI3U – Entrepreneurship – Exam Notes 2

BDI3U – Grade 11 Entrepreneurship – Exam Notes 2 Entrepreneurship Exam Review Unit 1 ● Entrepreneur – a person who organizes and operates a business or businesses, taking on financial risk to do so ● Entrepreneurship – the quality of being an entrepreneur; the act of ● ● ● identifying opportunities and mobilizing resources to bring about a change to operate a venture Characteristics of Successful Entrepreneurs ○ Confidence – is a hallmark of an entrepreneur. Not all are born with this trait but this can be acquired throughout time. Confidence can make that little difference which can help you keep your business be stable ○ Communication – is key when operating a business, mostly for human resources. The best communicators got that way by first being the best listeners. ○ Autodidactic (Quick Learner/Self Taught) – always be ready to learn because not everyone knows everything. New knowledge can always be beneficial. ○ Team Player – Team work is really important when it comes to operating a venture and a team helps to shoulder a heavy burden. Remember a twig alone can snap easily, but a bundle of twigs becomes stronger than the sum of its individual parts, and can be impossible to bend, much less break. ○ Dedicated – Entrepreneurs dedicate themselves to the fulfillment of their plans, visions, and dreams. One of the biggest reasons why ventures fail is because the entrepreneur or the owner loses focus. ○ Visionary – Seeing the future can give a little boost, which is required for all at times. And that boost can make that difference to making the business successful ○ Optimistic – An optimistic mindset is crucial for the entrepreneur, who learns to view failures as inexpensive tuition for the priceless business skills learned via first-hand experience. Failures, disappointments, and shortcomings belong in the past and shouldn't follow you into the future. ○ Leadership – Entrepreneurs should be capable of motivating themselves and others by taking initiative and tackling problems with a positive attitude. They should also be capable of leading people. True leaders never become necessary because if they did, everything would start to fall apart without them and they would never reach the ultimate point of freedom and wealth. ○ Risk-Taking – is necessary for the venture to become successful, because certain opportunities may arise but seem like risks, and the entrepreneur might not take that opportunity and he/she will lose money and time. ○ Motivated – are driven by an internal need for accomplishment and they seek success, both at work and elsewhere. ○ Hard-Working – can get a person to the moon. Entrepreneurs work long and hard to achieve success, which requires a lot of stamina. Needs – are essential for human survival. They can be classified as “real” or as “psychological”. Real or basic needs such as food, shelter and so on. Wants – are human desires that go beyond basic needs and are not essential for survival. ● Impacts on the Community ○ Job creation – An entrepreneur's job creation in the ● ● ● ● ● neighborhood has a multiplier effect. People working with the company will earn money and wish to buy things. People are more inclined to spend money and create more employment if they are accessible in the neighborhood. The company will require more personnel as it expands. There may be a growth in the number of residents, which will raise demand for goods and services. ○ New Ideas – Entrepreneurs frequently develop novel approaches to problems, which promotes the development of a wider variety of products and services than would otherwise be possible. ○ Economic Benefits – Entrepreneurs cut prices through competition, but they also raise the standard of living in a society. Everyone benefits from a society where wealth is more evenly distributed. A new business can open doors for additional entrepreneurs, increasing the amount of money in society. Demographics – is the study of the characteristics of people in a population. Entrepreneurs who study this have a better chance of surviving in the market. For example an Indian restaurant in an Indian neighborhood will be more successful than an Asian restaurant. Enterprising People – are entrepreneurs in a way, but don’t want to take the financial risks that entrepreneurs do. They have all the characteristics and requirements to be one. S.M.A.R.T. Goals – (Simple, Measurable, Achievable & Realistic, Timely, and Worthwhile) ○ Simple – goals should always be stated simply and written down, which ensures that you know exactly what commitment you have made. Written goals always serve as remainders! ○ Measurable – Passing a course is a measurable goal, and becoming a wiser person is not. Often the progress you can’t make happens naturally as you pursue a path toward more measurable objectives. ○ Achievable & Realistic – goals should always be realistic and achievable. If you set a goal which you don’t have the resources for, the result will be frustration and failure. Goals shouldn’t be too easy, or you won’t notice the progress. Goals should be challenging enough to require effort. ○ Timely – setting target dates for achieving your goals will help you get started and progress. If the progressing is slow, then add more resources to meet the target date or alter it ○ Worthwhile – Your goals should be worthwhile if not, then don’t waste your time! If it’s worth it then go in with all you got! SWOT Analysis – is Strengths, Weaknesses, Opportunities, and Threats, which are involved in a venture. Accessing Your Skills ○ Interpersonal Skills ■ willingness and ability to talk to others ■ ability to listen to and understand what others are saying ■ ability to motivate and encourage others ■ caring for yourself and others ○ Critical And Creative Thinking Skills ■ ability to solve problems by evaluating a variety of solutions ■ having the confidence to make a decision and act on it ■ keeping records and being accountable for all actions ■ ability ○ to generate ideas and identify opportunities Practical Skills ■ involve the ability to use special tools designed for a specific job. For example someone who works with digital media or in telemarketing needs to know how to use the appropriate equipment for the job. Entrepreneurship Exam Review Unit 2 ● Invention – creation of something new. ● Innovation – is a change to something that already exists. ● Protecting your Ideas ○ Patents – is a grant made by the government that gives the ○ ○ ○ ○ creator of an invention the sole right to make, use, and sell the invention for a set period of time. This makes it safer for people to discuss their work. Anyone can apply for a patent through the federal government. Copyrights – protects literary works, musical works, artistic works, and software. All Canadians are legally the owners of any creative works they produce, unless they pay someone to do it for them. The Copyright Act prohibits the publication, performance, translation, copying, and adaptation of another person's work without that person's consent. Books, maps, songs, lyrics, music, paintings, sound recordings, and other works are examples of copyrighted works. Trademarks– are words, symbols, or designs – or a combination of these – used to identify a product or service and distinguish it from its competition. Trademarks represent the business. ■ Ordinary Marks – are words or symbols that distinguish wares or services of specific firm or individual ■ Certification Marks – identify wares or services that meet defined standards. They are owned by one person but are licensed to identify acceptable wares or services. ■ Distinguishing Guises – refers to the unique shape of a product or its packages – such as the design of the Coke bottles Industrial Design Act ■ Industrial designs are protected by the IDA. Could be anything made by hand, tool or machine that has distinctive features, such as the shape of a chair or the design of a spoon. Once the design is registered the designer, called the proprietor, has exclusive rights to the design for a 10 year period Integrated Circuit Topography Act ■ ICT are electronic integrated circuits or IC products that are configured and interconnected. These creations are protected in Canada by the ICTA, which gives the creator exclusive rights for a 10 year period. Canada has agreements with other countries that also protect the ideas for a 10 year period because of exports that Canada does. ● Problem Solving Process ○ Problem Finding – the entrepreneur tries to define the ● problem by gathering observations, feelings, and impressions about the situation. Fact-finding is also important during this stage, because facts help in define the problem and may provide information that can be used in the solution ○ Idea Finding – the entrepreneur tries to come up with different alternatives or different ways to solve the problem. Creativity is the key! All ideas should be evaluated because sometimes the craziest ideas create the best ventures! (record them all) ○ SolutionFinding – when the entrepreneur will evaluate each of the ideas created earlier. The criteria needs to be established for this to occur. The ideas which don’t pass the criteria must be tossed out. The process isn’t complete until the solution has been tried. If the solution fails the entrepreneur needs to go back some steps and generate more ideas to continue on. ■ Step 1) Think about the problem ■ Step 2) Generate lots of ideas ■ Step 3) Establish criteria for evaluating ideas ■ Step 4) Use the criteria for evaluating ideas ■ Step 5) Rank your ideas and select the best one ■ Step 6) Try your idea out ■ Step 7) Is the problem solved? If not, go back and choose another idea and try again The 6 Thinking Hats ○ White – thinking concerned with gathering facts, figures, and objective information. It does not allow opinions to interfere. It’s like a computer, without emotion, and sounds like this: Give me the facts and figures please! What is the problem? What are the needs? ○ Red – acknowledges emotional and intuitive thinking and generates information without using reasoning or judgment but rather hunches and feelings. Like this: I have a suspicion... I feel like this... This is horrible in my opinion! ○ Green – lateral thinking hat that includes creativity, alternatives, and proposals. The color represents nature and things that grow from seeds like plants, creativity also grows from seeds. Sounds like: Aha! I got an idea! So, that's what you mean! How else can this be done? ○ Black – represents judgment and caution. Always presents a logical case against the idea, and gives negative feedback that is objective and free from emotions. Sounds like: This idea won’t work because… This could pose a problem… Yes, but… ○ Yellow – is also logical but in a very constructive way. This hat looks for positive outcomes and reasons why the idea will work. The Optimistic hat! Sounds like: this fits together well! I want to explore this further. This idea has some value! Blue - not the issue itself, but how the other hats will collaborate to address it. When leading and bringing other hats together, blue hat thinking is utilized. The hat responsible for everything is this one. Sounds like: Concentrate! Let's get going! Your turn now! ● Left Side of the Brain – is sequential, analytical, and linear. It contains the function of language and all language-related activities. ● Right Side of the Brain – works with the left and is the portion that is ● ● ● ● ● ● creative, imaginative, emotional, and intuitive. Keep exercising the right side of the brain to stay creative! Reading out loud grabs the attention of the right side of the brain. ○ Both hemispheres of the brain work together! Idea – A thought or suggestion as to a possible course of action. ○ Product-Driven Entrepreneurship – When an entrepreneur comes up with an idea first and then looks for a marketing opportunity. Opportunities – A set of circumstances that makes it possible to do something. Market-pulled Entrepreneurship – An entrepreneur identifies a problem, see an opportunity, and then comes up with an idea to take advantage of the situation Primary Research – the technique of gathering data firsthand through such methods as personal observation, interviews, and questionnaires. Secondary Research – the technique of analyzing and evaluating information that has already been gathered by other means, such as census data. Life Cycle of a Business ○ Pre Start-Up – Preparation to launch the business is made. Consider your resources and much more is required, and seek advice to make any final adjustments ○ Development – The research is complete and you have finalized the business plan and your goal is to reach the breakeven point. Follow up on customers' concerns and stay in touch with slow payers. Make sure you have enough to pay your fixed overhead (telephone bill, water bill… and so on). ○ Growth – Business has passed the break-even point and is now making money. Time to expand the business, might decide to add more to your inventory, or start an ecommerce. Take on a partner and revise your venture plan for the expansion you're going to apply to your business. ○ Comfort – By now your venture is secure and continuing to grow, although it's slower than 10% per year. The business may own the location it runs from and the assets of the business are worth more than the liabilities. This stage can also be dangerous if the entrepreneur doesn’t pay attention. ○ Turn Around – The business is in dire financial straits, and losses have been recorded for more than two years. Action must be taken immediately to save the business from failure. To prevent the company from failing and going bankrupt, you might need to terminate some staff, sell some assets, and limit some product offerings. Entrepreneurship Exam Review ● The Venture Plan ○ Mission Statement – An opening sentence that will pique the interest and attention of those who might be able to assist you, such as by making a financial investment in your company. The kind of business you're planning, the kind of ○ ○ ○ product you'll produce, and the overarching goal that has inspired this development are all stated in a good mission statement.. (Ex. McDonalds – “To provide the fast food customer food prepared in the same high-quality manner world-wide that is tasty, reasonably-priced & delivered consistently in a low-key décor and friendly atmosphere.”) Section 1: Executive Summary ■ Is a one or two page summary of the most important points in your venture, intended to introduce the venture and capture the attention of the reader. This is the chance to make a really good first impression. Opens with a solid mission statement. ■ Contact Information & The management of the business ■ Name of the venture and a description of its nature and objective ■ Info about the products/services offered, what makes the venture unique and so on Section 2: Market Analysis ■ It’s important to determine if the product/service you intend to provide will satisfy the needs of the market. This section helps you identify your potential customers, analyze your competition, set prices, and plan for ways to advertise! ■ Demographics of potential customers (age, gender, race, location, etc) ■ Types of products/services you think the customers will buy ■ Description of trends that suggest this is the right time to introduce your product or service ■ How much will you charge for your product/service Section 3: Resource Analysis ■ In this section the entrepreneur needs to consider the material, human and financial resources. ■ Both raw materials and completed goods are considered material resources. They might need tools, storage containers, plastic, paper, extension cords, printers, fasteners, flour, ovens, delivery trucks, and so on for a specific project. Some resources are consumable, while others are fixed and reusable resources. ■ Human Resources – are the people needed to operate the venture, without the right people the venture might as well fail. You will need employee’s and people outside the venture like an accountant, lawyer, and so on. ■ Financial Resources – meaning the money needed to start off the venture. This also includes the money to buy equipment and ○ ○ materials, to pay staff, and to pay other expenses such as rent, electricity, and advertising costs. Section 4: Operating Strategy ■ tells how you will manage these resources in the day-to-day operation of the business. It details people's responsibilities, channels of communication, the different departments that will exist in the organization, how work groups will operate, and how much work will be supervised. This section also deals with the inventory that is needed for the venture, any environmental policies that might affect operations (Ex. Green Plan). ■ Who will do each job and how much work will be supervised ■ How people will work together ■ What records must be kept and who will keep them ■ How the production process will be organized Section 5: Financial Strategy ■ that will be used to capitalize the venture. Unlike most financial statements, which are accounts of past performance, a financial strategy is based on projected results. ■ How much it will cost to start the venture ■ How much it will cost to keep the venture going ■ What sources of capital is available ■ How much capital is needed and when will it used ■ Must state how much money is needed, and it will help to show where the money is needed with a breakdown of funds. How will the loan be paid back in how long? Entrepreneurship Exam Review Unit 3 ● 4 P’s & 2 C’s of Marketing ○ Product (Or Service) ■ Is the product/service something customers will ■ ■ want to buy Will it be of benefit to them? Will it meet their needs? ○ Place ■ How will the product/service get to the customer ■ When should the product/service be in stock/ready? will the available ■ Where product/service be made ○ Price ■ How much are customers willing to and able to pay? ■ What is the best price to charge to earn max. profit ○ Promotion ■ How will customers be made aware that the product/service is available? ○ Customers ■ Customers who bought this were also interested in… ○ Competition ■ the same product, yet why a customer or client still might buy from you? ● Pricing Strategies ○ Cost-Plus Pricing ■ A mark-up is added to the cost price to ensure a ○ ○ ○ ○ ○ profit. (Mark-up = selling price – cost) Mark-up %=((selling price-cost price)/cost)x100 Follow-The-Competition Pricing ■ Price of the product is set the same as the competition or slightly a bit lower. This can increase market shares but make sure the price isn’t set so low that you’re going into a loss Penetration Pricing ■ Pricing a new product/service below the competition’s price and selling a large volume at a low price can generate a lot of profit. (newcomers to win market shares from the competition and attract lots of new customers) Skimming ■ When there’s no competition, a new product/service can enter the market with a high price. Short term profit and this will drop when the competition moves in. Psychological Pricing ■ Prices give the impression that they are less but aren’t (Ex. $399.99 instead of $400.00). Loss-Leader Pricing ■ Selected products are sold at the cost or less to attract customers to buy other products to make up for that loss. ● Promotion ○ Advertising – is a message paid for by the venture and ● directed towards the target market. The purpose of advertising is to move customers through the AIDA formula – Attention, Interest, Desire, Action. Can be done through newspapers, magazines, billboards, radio, TV, internet and so on. The product should be advertised where your target market will most likely look. ○ Personal Selling – Salesman convinces the customer that they need this product/service, which requires thorough knowledge of the product/service. And the sales rep. will add to the reputation of the venture. ○ Publicity – An unpaid message delivered by the media to the target market if the product is newsworthy. ○ Sales Promotion – Free sampling is done to attract more customers in and out of the target market. Usually coupons are used, free giveaways, and so on. Business Life Cycle ○ Stage 1: Introduction – is when the product/service first appears, and during this stage there is little or no ● ● ● ● ● ● competition. If the product is successful then it moves onto the next stage. ○ Stage 2: Growth – Competition moves in at this point and this is where the prices are reduced, or advertisement is increased, to increase the market shares. ○ Stage 3: Maturity – occurs when the product/service has reached its peak of popularity. Promotions and advertisements should be done as much as possible. ○ Stage 4: Decline – Sales of the product/service begin to drop. Many competitors have already fled, at this point the company must redesign the product/service or abandon it. Modifying it would take it to a different stage in the Cycle Expense Goods – Consumable material such as paper, oil, and gas. Capital Goods – long lasting goods, such as machinery, heavy duty equipment, and so on. Internal Human R. – are people who are part of the venture such as the entrepreneur, partners, and the employees. External Human R. – are people outside of the venture like accountants, lawyers, market advisers, bankers, insurance agents, and so on. Hiring Employees ○ Read over the employee’s submitted resume and narrow down the list to what your venture requires. Contact the references given, for just some background checks on the person. Conduct interviews to get a sense of what each person has to offer to the business. ○ When the job is offered remember to tell them their salary, start date, any benefits that will be provided. Training employees may be time consuming but it ensures that they will do a good job in the future. Law & Regulations ○ Before launching a business you need to find out all the rules, and if your business requires any permits or licenses. ○ Since the laws vary from province to province, it is best to find out from people like lawyers, bankers, accountants! Entrepreneurship Exam Review Unit 4 ● Insurance ○ Employee Insurance ■ Worker’s Compensation (what if your employees get injured on the job?) ■ Insurance can pay for any injuries, medical bills, etc. ■ WSIB (Workplace Safety and Insurance Board) ■ Mandatory in Canada ○ Vehicle Insurance ■ If you purchase vehicle insurance, and register ○ your business as part of the insurance, you will be covered if you are in an accident while on the job Home Insurance ■ If operating your business from home, may need to purchase additional coverage depending on ● risks involved (which could include injury to a visiting client and/or damage or theft to your equipment and/or inventory.) ○ Property Insurance ■ If operating business in a building other than your home ■ Protect yourself against damage or theft of your equipment or property ○ Research Insurance companies online, get a “quote” Financing Your Venture ○ Financial Objectives ■ Market Share ■ Way of representing company’s sales as part of total volume of sales of products made by company AND competitors. ■ Expressed as percent ■ If business has a market share of 18%, means its sales represent 18% of total sales made by all companies producing the same good/service ■ Profit Margin ■ Percent of the final selling price that represents the profit (the amount left over after the cost of producing the item is paid). ■ Example: If item costs $15 to produce, and sells for $20, then profit margin is: ■ $5/$20 = 25% ■ Profit Margin = Selling Price – Cost price x 100 ■ Selling price ■ Return on Investment ■ Amount of profit investors earn in return for the capital they have invested in your business ■ Ex. Gagan invests $10 000 in Sukhman’s Lawn Care Business. Gagan is paid $15,000 at the end of the summer ■ What is Gagan’s Return on Investment? ■ $5000/$10000 = 50% ■ Return on Investment = Amount returned – amount invested x 100 ■ amount invested ○ Covering Costs ■ Covering Costs ■ Must have financial resources to cover startup costs & operating costs ■ Startup costs: expenses that must be paid in order to get business up and running (Also known as One-time expenses) ■ Ex: Include fixed costs of production, plus variable costs incurred in providing goods or services during the startup phase (ex: paper, internet service, etc). ■ Operating Expenses: Expenses needed to keep a ■ ■ ○ Estimating ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ venture going once it has successfully completed the startup phase. Costs can be fixed or variable Operating expenses should be paid from sales revenues. (Otherwise, can go bankrupt) Revenue & Expenses Remember: Revenue=price x quantity Venture becomes cash rich when revenues greater than expenses When expenses are greater than revenues, the venture becomes cash poor. Entrepreneurs should make sure there is enough cash on hand to cover cash poor periods. Revenue: Once you know how much you can expect to sell, and at what price, you can estimate revenue With cash sales, money flows into business immediately. With credit, purchase may not be paid off for months Expenses: need to determine the cost of all the resources the venture will need. Process depends on information in the resource analysis section of your venture plan. Making sure there is always enough cash to cover expenses can be tricky Tomorrow: We will discuss something that can help: Cash Flow Projection ● Cash Flow Projections ○ Part 1: Cash In - The money that the business really receives ● from sources like sales, loans, and contributions is tracked in this area. When received, income is also noted. ○ Part 2: Cash Out – Tracks all the expenses paid out. If something was bought in Month 1 but paid in Month 2 it will be recorded under Month 2. ○ Part 3: Net Cash – The value of Cash out is deducted from Cash In to determine whether it was a surplus or deficit. Ways to Raise Capital ○ Personal Savings – Conveys a high amount of confidence in the venture to use personal money, and this way is taken because entrepreneurs don’t want others to tell them what to do. ○ Friends & Family – This type of investment is called love money. Family wants to spend money to see the business successful, and the disadvantage is that the loss of money can lead to relationships being hurt. ○ Partnership – the partnership will split the business, and the business will receive a higher credit rating and will increase the borrowing power. ○ Incorporation and Selling Shares – selling shares can the best route ○ Employee’s, Supplier’s, And Customers – Invite them to buy a share of the company, and stock option plans. Consignments can be signed with suppliers to charge only for the goods sold.