Entrepreneurship

Chapter 1 : The Entrepreneurial Revolution

1. Who is an entrepreneur?2. What is entrepreneur's perspective?3. How does an entrepreneur react to economy sensitivity?

The above three (3) questions explain the following as answers, respectively;

1. Who is an entrepreneur?

An entrepreneur is an individual possessed these bailiwick; manager, business minded, and innovative. A manager is management skills driven, a business minded individual is profit driven, and innovative is sub-divided into four (4) which are create new, create an extension to the existing, duplication, and synthesis.

Management skills driven means having high efficiency level. What is efficiency?, efficiency is the results from high value in output over less value in input. An example, given one specific task scheduled completion period of time in one week and able accomplished the task in four (4) days only.

Profit driven means always practicing financial base calculation for getting high ROI (Return On Investment) with low BEP (Break Even Point) in every task given or obliged. Where, high ROI in general is a results form the value of high profit over capital. In details ROI is profit margin multiply by turnover. Profit margin is profit over revenue and turnover is revenue over capital.

By formula explanation;

a. Return On Investment, ROI;

= Profit Margin X Turnover= (Profit/Revenue) X (Revenue/Capital)= Profit/Capital

b. Break Even Point, BEP;

= Fc / [1 - (Vc/Re)]

Fc is Fixed costVc is Variable costRe is Revenue; also as Sp is Selling price

2. What is entrepreneur's perspective?

Entrepreneur's perspective is seeking opportunity, where an entrepreneur derives an opportunity as high ROI over less risks. How to obtain high ROI already explained at the above paragraph and now how to minimize the risks involved. Minimizing risks is by applying risks management system where basically it use SWOT analysis add up with SSS (Sort and Solve System).

SWOT is an acronym to Strength, Weakness, Opportunity, and Threats. Whereas, SSS taking all the listed weakness and threats in SWOT analysis and sort all the listed problems into categories, finally, minimize it respectively with feasible and pragmatic solutions.

3. How does an entrepreneur react to economy sensitivity?

Always planning ten (10) years ahead in account projection for cashflow, profit and loss, and balance sheet. Which means, an entrepreneur must learn all the basic account in producing quality financial planning. Which means, cash assets must always in safe and save once any quick liquidation needed to support the investment made without relinquishing ownership in property assets.

Chapter 2 : An Evolving Concept

When we said ‘evolve’, its definition is gradually developing. The meaning of it in entrepreneurship is to develop gradually a scheme or concept or system or product. By means it’s related to Chapter 1 under topic 1 - ‘Who is an entrepreneur?” and focus on Paragraph 1.

From what we look today, the ‘evolving concept’ really involved these types of entrepreneurial development; a scheme or concept or system or product whether in create new or create an extension to the existing or duplication or synthesis.

Regarding duplication it means for establishing branches of business outlets and the related networking. Synthesis is collecting others ‘the best’ and synthesizes it to be a new scheme or concept or system or product which also consists of integration factor.

Example 1 – create new:

I invent a nutritional product enabling human by just take one ‘food and drink’ pill or tablet type to energize human body that can last for a month. This kind of invention will be making the world population no longer having shortage of food supply.

Example 2 - an extension to the existing

Let me take a simple example about safety to one cigarette lighter. To prevent children misuse the small cigarette lighter, I design, build, and manufacture by adding one effective hidden ‘lock button’ to enhance its safety feature. This is the meaning of an extension, at least.

Example 3 – duplication

Like one fast food business building up it branches through ‘franchisor and franchisee’ system.

Example 4 – synthesis

I want to manufacture a new television brand or label. For my product output much better than others, I select the best systems from the existing products from the respective audio system, tubing, circuitry board, electrical, design and pattern.

More interestingly, ‘synthesis’ in business management system, I synthesize it by operating simultaneously the common offline network, internet web base, e-commerce, e-marketing, e-advertising, and e-management. By means of minimizing BEP and maximizing ROI values while enhancing business development, efficiently. From this point, having said, now it also commonly known as ‘internetpreneurship’

An evolving concept also a method to break up many myths and the listed below are the common myths which an entrepreneur must determine, the followings;

THE MYTHS OF ENTREPRENEURSHIP

Myth 1: Entrepreneur is gambler

Myth 2: Entrepreneur is always inventor

Myth 3: Entrepreneur is born, not made

Myth 4: Entrepreneur is rigid high profiler

Myth 5: Entrepreneur is extreme risk taker

Myth 6: Entrepreneur is money squanderer

Myth 7: Entrepreneur is non-calculative luck

Myth 8: Entrepreneur is thinker and non-doer

Myth 9: Entrepreneur is social misfits and academic

Myth 10: Entrepreneur is non-futuristic as money is concerned Chapter 2.1 : Macro View and Micro View

The Schools of Entrepreneurial Thought(abbreviation: SoT is School of Thought)

We commonly heard these two (2) famous terminologies from media, economist talks, community discussion, etc. about macro view and micro view. But, what is actually macro view and micro view?

First and the foremost, we have to discern ourselves about which school of thoughts approaches the both; macro view and micro view; respectively. Why it’s so important about to know which one approaches the respective view? The answer is it’s very essential to determine which SOT to avoid semantic warfare in explaining the respective view’s development where the movement either for unification or expansion.

Don’t worry, I will explain what it’s all about by using simple and plain language for common readers to understand about this thing because no point sharing good thing but intricacy in catching it up. Just see, read, look, and observe carefully.

Macro View- Environmental SoT- Financial/Capital SoT- Displacement SoT

Micro View - Entrepreneurial Trait SoT (People School)- Venture Opportunity SoT- Strategic Formulation SoT

From the above, now we understand for which SoT approaches the macro view or micro

view. In fact, better understand at this part is an imperative subject when we are in business community to do talking with the appropriate terminology of it.

What is macro view?

In contemporary entrepreneurial venture or ventures, when we talk about the story of success and failure, presents in a broad array of factors that relate why success? and why failed? This is macro view.

I hope you understand now how the three (3) SoT approach macro view. The respective SoT will think about the business environment, financial/capital, and displacement. What factors contributed the success, and the failure as well. This is macro view, very simple isn’t it?.

What is micro view?

In micro view, examine the factors that are SPECIFIC check and balance in ability, control, direct, adjust the outcome or result on each major INFLUENCE contributing factors in success and failure. It’s also known as “Internal Locus of Control” (ILC). The normal major ILC are;

1. Key persons (principle and achievement)2. Psychological characteristic (the value of key person) 3. Classical (key person’s vision and opportunities provisions)4. Management (key person’s plan, capabilities, and credentials) 5. Leadership (key person’s quality in managing sub-ordinates)6. Intrapreneurship* (key person’s “adaptation and change” methods)

How does approach process going through in both views?

There are integrative, assessment, and multidimensional approaches.

DIGITAL BHOOMI’S “Classnote” FORUM INDEX, AS AN EXAMPLE

Integrative approach focus on inputs and outputs in both areas; success and failure. To easily understand this approach, let me take Digital Bhoomi’s new forum index for Education > Classnote. Digital Bhoomi Teams now observing the inputs from members and feedback from members and netizens out there responses/viewers as outputs. This is the meaning of INTEGRATIVE APPROACH.

Assessment approach focus on qualitative, quantitative, strategic, and ethical done by members in posting new thread in the ‘classnote’ forum and responses/viewers.

Multidimensional approach is a more detailed process where Digital Bhoomi Teams delve into these factors of member’s participation including viewers, as well; the individual, the environment, and organization. It justly like Google Analytics system which in details providing weblog site’s visitor’s details.

Chapter 2.2 : Intrapreneurship

Intrapreneurship is a very famous word amongst the business community life. But, there are many common people still cannot get the definition and the meaning for who is the entrepreneur. I will explain about it in term of its definition and the meaning of it with lucid description in my explanation.

Who is an Intrapreneur?

By definition an intrapreneur is a dreamer. By its meaning an intrapreneur is a person who got a dream and at the same time working to make the specific dream turns into profitable reality. An intrapreneur is not just a theory person but also a practical person responsible in creating innovation.

Entrepreneurship is a process of innovation, intrapreneur included, and the process through four major dimensions, which are;

1. individual,2. organization,3. environmental, and4. process.

Entreprenuer and entreprenurship are very important to one country to generate economy ventures and values because an entrepreneur is a catalyst for economy change and entreneurship is the process. An entrepreneur works by using key success of searching, pragmatic planning, sound judgment during carrying out the process.

All of the above explained the entrepreneurial management which is imperatively needed in the entrepreneurship and its process.

Chapter 2.3 : Successful Entrepreneur and beliefs

This is my personal beliefs about the criteria of an entrepreneur as successful remarks in entrepreneurship world. You as a reader to my writing article whether agree or disagree, may it be your source of knowledge your MBA’s project or examination paper. If you agree take it and if disagree replace or substitute it with your genuine ideas.

This is the best part learning in Master’s Degree where a student is not rigid to any third party’s ideas and freely to express the ideas in their own genuine way (a must) completely with concrete data of facts and figures.

My idea about successful entrepreneur, the criteria;

1. Most of them came from little formal schooling. They are freely to invent anything as they focus on uplifting their personal achievements while debouching themselves from hardship life.

2. Most of them are from school drop out and found themselves in great pleasure and energy to give out proves that they also can excel in their life. They take it as a challenge.

3. Very unique and individualistic where they are in business world and they find very hard

for them to fit in into common community life. They focus merely on their success and taking failure points is a great thing to solve and something which is not to ignore.

4. They are in competent in managerial and always perform proper planning, and they enhance it on going basis.

5. They derive luck into two parts; calculative and fortunate; they work hard on calculative luck and take it as a prime factor to produce more systematic process. Any idea be their fortunate luck and thing to turn it into reality.

6. Most of them successful in their first venture, although a little but they take it as inspiring value for them to make continuation in invention. No matter for them while negotiating with low financial resources and no recognition.

7. They learned through their study and experience. They never stop and enjoying their learning process.

8. They got winning personality and highly achievement drive. Never bother encountering problems and always look into a problem is an opportunity to be participated with risks management.

9. They are an individual performing methodical and analytic in whatever they do. Their success be their goal although time consuming.

10. They brag and tout in achieving their dream to turns into reality. In common language speaking, they are also a non-stop thinker and doer. Chapter 3 : Intrapreneurship – Developing Corporate Entrepreneurship

Chapter 3.0 : Definition of Intrapreneurship

For the definition and meaning of Intrapreneurship, kindly refer to Chapter 2.2 : Intrapreneurship or > click here < for quick reference.

Chapter 3.1 : Corporate entrepreneur needs

In-house entrepreneurship is much needed in corporate entrepreneur in term of recognition and financial provision. As the number of entrepreneur is escalating in one country, the government relevant agency must support and prioritizes the utmost group which proven contributed more in country’s GDP (Gross Domestic Product) value.

In return, from the tax return must cushion the minor entrepreneur groups in enhancing their innovation under one scheme. In fact, from one innovation does creates number of employees. This kind of chaining down will improve much on economy growth.

This is the way to foster entrepreneurial growth as in-house entrepreneurship as a new “corporate revolution”. The needs of new atmosphere in making entrepreneurs be more innovative in future. The more new innovations will leverage employment rate with high value of entrepreneuring.

Chapter 3.2 : Obstacles in innovation to penetrate corporations

The major obstacle is ineffectiveness of traditional management techniques still applied in new ventures. An entrepreneur must fully utilize the new venture in implementing new

effective system of management, operation, financial, and control.

To minimize obstacle an entrepreneur must recognize the obstacle and adapt it for new change, as changing is concerned it must be done in new atmosphere with new productive managers and cannot make use the same manager from the previous venture.

In this case, if we refer to management chart or organization chart, the chart must not in tower type and it must be in more on small flat horizontal type. Then, it’s a fact shown the corporation level and value.

Another aspect is orientation to the market which visions must have a clear-cut vision with strong tie up with market place regardless of its new venture status, where, leading factor is a must.

To summarize all-in-one in minimizing obstacles, these following actions must be implemented;

1. Make ground rules specific to each situation.

2. Focus effort on critical issues.

3. Change plan to reflect new learning.

4. Envision a goal, then set interim milestones, and reassess after each.

5. Support entrepreneur with managerial and multidiscipline skills.

6. Take small steps, build out from strengths

7. Make venturing mainstream by means of taking affordable risks.

8. Test assumptions by using learning strategies e.g. like Digital Bhoomi is doing now by testing new forum index for Education > Classnote

9. Balance risk and reward, like what Mr Administrator doing now is a very good thing while promoting ‘Classnote’ thread and at the same time think about ‘reward’ to participants.

10. Accommodate “boat rockers” and “doers”. This is the reason why I keep posting this “MBA – Module – Entrepreneur” be the example to other members. Chapter 3 : Intrapreneurship – Developing Corporate Entrepreneurship

Chapter 3.0 : Definition of Intrapreneurship

For the definition and meaning of Intrapreneurship, kindly refer to Chapter 2.2 : Intrapreneurship or > click here < for quick reference.






The major obstacle is ineffectiveness of traditional management techniques still applied in new ventures. An entrepreneur must fully utilize the new venture in implementing new effective system of management, operation, financial, and control.














10. Accommodate “boat rockers” and “doers”. This is the reason why I keep posting this “MBA – Module – Entrepreneur” be the example to other members.Chapter 3.0 : Definition of Intrapreneurship

For the definition and meaning of Intrapreneurship, kindly refer to Chapter 2.2 :

Intrapreneurship or > click here < for quick reference.






The major obstacle is ineffectiveness of traditional management techniques still applied in new ventures. An entrepreneur must fully utilize the new venture in implementing new effective system of management, operation, financial, and control.














10. Accommodate “boat rockers” and “doers”. This is the reason why I keep posting this “MBA – Module – Entrepreneur” be the example to other members.Chapter 3.3 : Reingineering corporate thinking

Reengineering means rework on the top rank administrative key person in corporate level to accept entrepreneurial ideas can be implemented in their working environment. Which normally in majority the top managers group hardly believe the unstructured ideas from entrepreneurs is fully potential on the ground and authoritatively the managers are working with policies, terms, and regulations.

To match between both parties, here is the step to reengineer their corporate thinking;

1. Set explicit goal

Both parties must in one team working hand-to-hand and an example between worker and manager mutually agreed in setting one goal by working together in one team work with systematic team building.

2. Positive reinforcement and feedback

A manager must create this environment in the working area so that the said potential inventors or creators or intrapreneurs realize that they are accepted and rewarded by their superior (manager). Making them comfortable enough to follow the policies, terms, and regulations that has been agreed earlier.

3. Emphasize individual responsibility

This is the powerful momentum in generating new phase in accountability, self-confident, bond of trust, key points of success to be introduced in any innovative program.

4. Rewards base on result

This type of rewarding system will encourage inventors to manage the risks taken efficiently by minimizing it to the lowest level and in well brought up many opportunities by means of achieving the goal. A manager only doing job on the control side in the operation management system.

5. Friendly informal meeting

A manager must encourage more informal meeting in getting more effective and productive decision making on the spot. Chapter 3.4 : Intrapreneurial strategy

Strategy needed in both intrapreneurial areas; current and new ventures. It’s needed to discover new motivational methodology in enhancing operation management system. There are four critical steps which are developing the vision, encouraging innovation, structuring the environmental climate, and developing venture teams.

1. Developing the vision

Vision is any imaginative plan or suggestion or feedback to turns into reality. Vision must be

followed by feasible missions. Mission is a field of practical tasks which supports the vision to be through and true. Objective is the positive outcomes to be achieved and the purpose of it after the listed missions accomplished and vision a reality.

It will much better for me to describe it into flow chart in explaining how to develop vision, the following;

Vision↑↓

Missions↑↓

Objectives↑↓

Competency↑↓

Managerial Ability↑↓

Technical Proficiency↑↓

Sources of fund(Vision also can be created later by a wealth inventor or creator or designer and it just works

vice-versa)

2. Encouraging innovation To encourage innovation several effective programs must be scheduled and to work out. Such as reduce unnecessary bureaucracy, and encourage communication completely with functions across sub-ordinates and networks.

Outsource the related tasks to subordinates and networks which quality takes first. Sufficient ‘intracapital’ (internal venture capital) to support financial need in the specific intrapreneurial project for either radical or incremental type of innovation.

3. Structuring the environmental climate

In structuring the environmental climate the following prime factors needed to be promoted; promote training program, proper control of human resources policies, solution support system, promptly respond to any type of error once surfaced.

4. Developing venture teams

This area of development involve three import parts to be focused on; teamwork, resources, and plan (opportunity). It justly looks like a ‘triangle’ shape and I term it as ‘PRT triangle’ to easily understand the connectivity to each part.

Between team work and plan it works unification. Between team work and resources it works expansion. Between resources and plan it works in bridging the fits and gaps.

Implementing the effective OMS (Operation Management System into team work much helps the whole set in the ‘PRT triangle’. What is the so called effective OMS? To easily understand about OMS it would be much better to remember its acronym for PODC; Planning, Organizing, Departmenting, and Control.

In PODC, planning must follow the missions where all tasks have been listed. Organizing means identifying what post should be established related to the tasks listed in the missions, having said, an organization chart and it must be in flat horizontal type of chart (avoid ‘tower type’ of chart). Departmenting means select and appoint the key person to in every post in the organization chart. Control means using the relevant control program e.g. Gantt Chart or Microsoft Project or others. In small organization, just apply similarly maybe by using simple tools to monitor and control the progress.

Chapter 3.5 : Intrapreneurship interactive process

As we had learned, intrapreneur can be anybody who does turns idea, or prototypes or into profitable realities. They begin with their idea and carry on with their own ‘intraprise’ and their work form started from vision, missions, objectives, competency, managerial ability, technical proficiency, and sources of fund. Kindly refer to flowchart in “Chapter 3.4 : Intrapreneurial strategy - Developing the vision”.

Intrapreneurship interactive process involves;

1. Primary motives2. Time Orientation3. Tendency to action4. Skills5. Attitude toward courage and density6. Focus of attention7. Altitude toward risks8. Use of market research

Brief explanations to the itemized list above, respectively;

1. Primary motives

Always working base on goal orientated and all the time highly self-motivated. Seek chance to access corporate resources while asking for freedom in giving proves of success to be recognized and rewards.

2. Time Orientation

Able manage themselves with the given corporate timetable and guidelines. Ready to surface in urgency and attend it with quality self management and quality time management.

3. Tendency to action

Understanding what must be done and skillfully prioritizing all the things which need to be done. Outsource all the routine works to the relevant efficient sub-ordinates and they focus on the complex problems toward solution finding.

4. Skills

Promptly react to any unexpected or unprecedented problem and able to create greater prosper value in working condition and organization. Never fret and taking there is a solution to any problem.

5. Attitude toward courage and density

Be optimistic in ability to outwit as self courage really making an intrapreneur in greater self-confident although during encountering many cynical statements from others.

6. Focus of attention

Positively sensitive taking comments made by internal and external parties for self development in getting profitable outcomes. Weakness points to be changed to strength and minimizing threats a new thing in the learning process toward solution finding.

7. Altitude toward risks

Risks to be minimized by determining all the risks factor involved in the working area. At the same time looking risks as new opportunities to niche in the situation with new practical ideas. As an opportunity is high return over minimum risks.

8. Use of market research

Taking others market research to study in making new marketing plan which involve marketing philosophy, demography and customer behavior from the supplied data. Chapter 4.0 : Understanding the Entrepreneriual Perspective

From Part 1 of 6, we knew that every person possess a potential to be an entrepreneur where the process for being entrepreneur is called entrepreneurship.

In this part, the perspective means a mental view in creating prospective entrepreneur. There seventeen basic or core mental values as follow;

1. Commitment, determination, and perseverance (consistency)

2. Drive to achieve

3. Opportunity orientation

4. Initiative and responsibility

5. Persistent problem saving

6. Seeking feedback

7. Internal Locus of Control (Chapter 2.1 : Micro View)

8. Tolerance for ambiguity

9. Calculated risk taking

10. Integrity and reliability

11. Tolerance for failure

12. Vision, mission, and objective

13. Self-confidence and optimism

14. Independence

15. Team building

16. High energy level

17. Creativity and innovativeness

Chapter 4.1 : The Dark Side of Entrepreneurship

An entrepreneur has to face the risks involve in their entrepreneurial building and this is called as “The Dark Side of Entrepreneurship”. The common risks formed are;

1. Financial Risk2. Career risk3. Family and social risk4. Physic risk

1. Financial Risk

To start a new venture indeed need financial source which normally involve liquidation of saving money, profit taking from profitable investment, relinquish in ownership property, money lending, or from other sources to put up stake. In other words risky in term of be lost if venture fail and also expose to bankruptcy.

2. Career risk

Once venture failed an entrepreneur normally think about go back to their old job or clueless in finding new job. This type of thinking surface, previously they came from a secured organizational job.

3. Family and social risk

This type of risk appear at the beginning time of venture when thing not yet well organized. Need more energy and time in building up the basic things in their venture. There is special term for it “Self-centered”, where entrepreneur use more time for personal development and venture fulfillment.

4. Physic risk

In this area of risk, it focus on personal stress which the sources are possibly from loneliness, immersion in business, people problems, need to achieve factor. But not all stress is bad and it can be dealt to avoid decline in physical abilities.

Whatever, physic risk is a major ‘killing’ factor if entrepreneur not physically and mentally fits and must get rid of entrepreneurial ego where it’s able to create great pressure in mental development.

Chapter 4.2 : Entrepreneurial Motivation

(Quick learning through model explanation)

ENTREPRENEURIAL MOTIVATION MODEL

Expectation ← ← ← ← ← ← ← ← ← ← ← .Intrinsic/Extrinsic Rewards

Outcome.................................................. ...........................↨Comparison.................................................. .....................--↨....↓.................................................. .................. .↨Decision.......................................... .............................. .....↨to Behave.............→ Ent. Strategy → Ent. Management → Firm Outcomes Entrepreneurially.................................................. ......↓....↑.................................................. ............... ......↓Implementation.................................................. ........↓Outcome................ .. ← ← ← ← ← ← ← ← ← ← ← ← ← ┘

Perception

Split Model For "Decision to Behave Entrepreneurially"Chapter 5.0 : Developing Creativity and Understanding Innovation

There are two (2) parts for me to explain; developing creativity and understanding innovation.

Developing creativity is a study about creative process which includes knowledge accumulation, incubation process, idea experience, evaluation, and implementation. (Chapter 5.1)

Understanding innovation is a learning process about what is innovation, to define and illustrate the sources of innovation, eliminate some myths, to define the 10 principles of innovation, and illustrate the financial support for innovation. (Chapter 5.2)

Chapter 5.1 : Developing Creativity

1. Knowledge accumulation

Knowledge about the role of creativity is very important for knowledge accumulation. There are two (2) important aspects of creativity exist; process and people.

Process means solution finding to problem which also includes the factor of goals orientated. The people are the resources that determine the solution through two (2) channels; adaptor and innovator. Adaptor person will use methodical approach and innovator person search for new method of solution from unusual angels which also futuristic.

2. Incubation process

Incubation process is much needed when entrepreneur engaged in problem which is unprecedented and totally new which not yet a journal to be referred. During this time, entrepreneur needs to shift themselves into ‘free time’ zone and enjoy their indulge as refreshment e.g. playing outdoor/indoor game, motor biking, cycling, golfing, sea surfing, etc.; while thinking new ideas or solution finding to the specific problem.

3. Idea experience

Idea experience is a process when individual found the solution needed or discovered which also means look solution in the form of idea but not yet in practical.

Sometimes it popped out in person’s mind as ‘bolt out of the blue’. Although it’s in the form of idea but it grow gradually and surely. This is the component of creativity also known as ‘eureka factor’ as it happened normally during incubation process.

4. Evaluation

Now is the time to test the said idea which was formed form ‘eureka factor’ feasibility. During this time it needs self-discipline and perseverance, much highly needed. On performing this type of evaluation, sometimes it bubbles many new workable ideas and also sources from various/numerous angles. Result speaks itself.

5. Implementation

The important part in implementation is working in network environment such as seeking expert advice, determine quality sub-ordinates as participant (organize), prepare costs pro forma (financial projection), prepare projection plan or plans related to goals orientated.

MODEL OF THE CREATIVE THINKING PROCESS

Incubation

↑Knowledge ←[Creative Process]→ Ideas

↓Evaluation and Implementation

________________________________________________

Knowledge Accumulation ≤ Incubation ≥ IdeasKnowledge Accumulation ≤ Evaluation and Implementation ≥ Ideas

Chapter 5.2 : Understanding Innovation

1. What is innovation?

Innovation is sub-divided into four (4) which are create new, create an extension to the existing, duplication, and synthesis. Explanations complete with examples have been explained in Chapter 1 : The Entrepreneurial Revolution - Who is an entrepreneur? (Kindly refer).

2. To define and illustrate the sources of innovation

Entrepreneur more on exploiting change rather than create change. The sources of innovation are; unexpected occurrences, incongruities, process needs, industry and market changes, demographic changes, perceptual changes, and knowledge base concepts.

Unexpected occurrences happened in both areas; success and failure; from this point many new ideas which are workable can be implemented.

Incongruities normally happened during negotiating fits and gaps which exists between expectations or projections and reality.

Process needs occurred when both segments of demand and supply changed. This situation needs new process in introducing more effective new profitable plans in the check and balance tasks.

Industry and market changes are continuum type of occurrences and this type of changes to encourage new development to be built in specific time frame.

Demographic changes normally happened during the economy instability in population, the ups and downs. It colors the marketing pattern and formation including advertising tasks complete with specific promotion.

Perceptual change is a kind of intangible change happening in people’s interpretation sourced from concept and facts in their daily life. This change is very meaningful as it’s a type of drastic changes.

Knowledge base concepts sourced from availability various and numerous products introduced in open market among rivals which produced pronounced and promoted their respective advantages.

3. Eliminate some myths

Major innovation myths commonly promoted by failure parties when they faced deadlock situation and no longer interested in making continuation. The following is the promoted major myths;

a. Innovation is planned and predictableb. Technical specifications should be thoroughly preparedc. Creativity relies on dreams and blue sky ideasd. Big project will develop better innovation than smaller onee. Technology is the driving force of innovation and success

They put problems ahead and they go stern with their failure. This is the needs of ‘incubation’ process (Chapter 5.1 : Developing Creativity – Item 2)

4. To define the 10 principles of innovation

- Be action orientated. All time searching for new ideas as source of innovation.

- People acceptance. Make the introduced or promoted product simple and understandable with free intricacy method. It also apply to system or process or service, a simplification of it.

- Small beginning. This is important to the eyes of the world to detect and notice that our innovation keep on develop and growing larger. His is the needs of 10 years future projection and planning.

- Align high. This method is to make innovation popular although vulnerable to be commented by many. The important is their feedback is our free source for knowledge accumulation to perform new invention. Also commonly known free nature resources.

- Milestone schedule friendly. In this case following milestones schedule helps much in creating new and energetic working environment.

- Failure an innovation. Accept failure as innovation accomplishment. Reworking is a must task while enjoying new practical ideas which workable and profitable to be implemented.

- Make the product, process, or service customer-based type of product. What end users want most profitable products? (demographic)

- Must continuously try or test or revise in detecting any weakness.

- Aim high in reaching any point of niche value in open market and while deviate from saturated market place.

- Must perform R & D to the specific weak point by means of creating new product as a replacement, something such as re-branding.

5. Illustrate the financial support for innovation.

There is numerous and various financial support available as prospective in open market itself and the following;

Venture capital environment sourced from personal, friend and families, ‘angel’ investor, property liquidation, stake relinquishment, banking, and institution/organization.

The main thing is the innovation plan (project and business) is understandable, system compliance, feasible, profitable plan. This is the face value of one coin

Chapter 6.0 : Ethical and Social Responsibility Challenges for Entrepreneurs

In this chapter we all can learn the importance of ethics for entrepreneurs from the beginning point by defining the word of ‘ethic’. It is a conceptual framework to study ethics to leverage and enhance a dynamic environment by reviewing the meaning of constant dilemma of law versus ethics.

Examining the role of ethics to discern entrepreneur and understand in the free enterprise system. Present the strategies for establishing ethical responsibility while emphasizing the importance of entrepreneurs in taking a position of ethical leadership.

Defining Ethics

Basically, ethics is the rules of conduct recognized in respect to a particular class of human actions or a particular group, organization, culture, custom, etc.

In the world of entrepreneurial world, ethics is the principles describing sets of discipline which is highly feasible and quality pragmatic laying out the guidelines and determining the “Dos and Don’ts in reaching profitable outcomes.

Ethics and Laws

Ethics promote advancement and laws establishing boundaries. This is the important part for entrepreneurs to negotiate with. Moving forward extravagantly but having leaps and bounds with the laws is a hectic practice.

In this case, entrepreneur needs to apply managerial rationalizations while maneuvering the overlapping or duplicate of interest between moral standard and legal requirements.

Establishing a Strategy for Ethical Responsibility

The prominent strategy is promoting both for Ethical Practices and Codes of Conduct, and Approaches to Managerial Ethics.

Ethical Practices and Codes of Conduct is not a burden thing for entrepreneur to practice because everything has been stipulated in the specific ‘book’. The only thing is to enjoy some extra ‘niche’ from the written clauses.

Approaches to Managerial Ethics quite analytics in forming profitable goals as it relies on ambiguous management factors in immoral management, amoral management, and moral management. In this type of approach it needs holistic approach focus on providing standard principles system more than rules system.

Ethical Responsibility is not an easy task to perform an ideal one. In this area of ethics, the process to structure institutional objectives is needed. So in building up a strategy for ethical responsibility, must create points of exciting and rewarding in organization.

Ethics and Business Decision

Before making any decision, determining the ethical dilemmas factors is a prime task. Ethical dilemmas factors are personality traits, conflict of interests, social responsibility to venture partners/stakeholders (if any), and level of openness. Once the four dilemmas factors in the right solution, then it’s a right time to make a final decision.

The Social Responsibility Challenge

The nature of social responsibility includes these particulars;

1. Environment – pollution control, restoration or protection of environment, conservation of natural resources, and recycling efforts.

2. Energy – conservation, efforts to increase energy efficiency, and provide energy saving programs.

3. Fair business practices – employment and advancement of women, handicap, and all minorities group classified.

4. Human resources - promotion of employee health and safety, employee and training program, and introduce stress management system to employees.

5. Community involvement – donations, sponsorship, and related community program in the area once needed.

6. Products – enhancement of product safety, product safety education programs, and providing anti-pollution program and equipments.

The opportunity for Ethical Leadership by Entrepreneurs

Although ethical responsibility is a complex one, but there are key points for entrepreneur to realize. In complexity there is simplicity, and the key points are;

1. Personal integrity – this is very powerful in ethical leadership.

2. Ethical example – very effective be the key to employees to follow for their ethical performance.

Chapter 7.0 : Environmental Assessment - Preparation of New Ventures

To establish new venture an ‘Environmental Assessment’ must be used before making any final decision for yes or no. Environmental Assessment is a method of evaluation in determining the proposed venture really practical to be established. It uses ‘Environmental Scanning” as an indicator.

What is Environmental Scanning?

Environmental Scanning refers to the efforts by which an owner-entrepreneur examines the external and internal environments before making a decision. It also includes SWOT Analysis; Strengths, Weakness, Opportunities, and Threats.

The external environment consists of variables; opportunities and threats; and has two (2) parts, task environment and societal environment.

What is Task Environment?

Task Environment includes elements or groups that directly affect and effected by an organization’s major operation.

What is Societal Environment?

Societal Environment includes more general forces, do not directly touch the short run activities but able to influence its long run decision.

What is Internal Environment?

The internal environment consists of variables; strengths and weakness; within the organization itself includes venture’s structure, culture, and resources.

[ Quick learning through flowchart ]

.Environmental Assessment

↓Environmental Scanning

↓External Environments.....◄..........►.....Internal Environments

↓opportunities and threats.....◄ SWOT Analysis►.....strengths and weakness

↓task environment and societal environment.....◄..........►.....venture’s structure, culture, and

resources

↓(elements or groups) and (general forces).....◄..........►.....venture’s structure, culture, and

resources

___________ Details ___________

SOCIETAL ENVIRONMENT(General Forces)

Quote:

Sociocultural - Economic - Political/Legal - TechnologicalTASK ENVIRONMENT(Elements or Groups))

Quote:

Stockholder -Supplies - Government - Employees/Labor Unions - Special Interest Group - Customers - competitors - Creditors - Trade Associations - Communities

INTERNAL ENVIRONMENTQuote:

venture’s structure, culture, and resources

Chapter 7.1 : Macro View – The Economic and Industry Environments

There are two (2) major areas warrant consideration in macro view; General economic environment, and Specific industry environment.

1. General economic environment

Any venture relies on general economic environment and plays important roles in the success and failure. This is the reason economists in one country refer to GDP (Gross Domestic Products) value in talking focus on external environment in environmental assessment under environment assessment (Chapter 7.0). Similarly, in the world of

entrepreneur’s venture. Every person refers to these points in debouching their venture from the gloomy general economy and do revamp to the utmost level, if applicable and reasonable;

a. Regulatory environmentb. Regulatory agencies on the typical businessc. Trends in policy formationd. Other significant public policy developmentse. Examining the industry environmentf. Minimize the possible constraints to industry developmentg. Back to competitive analysis and the componentsh. Taking the right steps (Item 2, below)

2. Specific industry environment

a. clearly define the industry for the new ventureb. analyze the competitivec. determine the strength and characteristic of supplier/inputsd. establish the value added measure of the new venturee. project the market size for the particular industry

Chapter 7.2 : Micro View – The Community Perspective

Micro view or microenvironment assessment takes turn after macroenvironment assessment done or it might run simultaneously. It examining these areas of factors; Researching the Location, Determining reliance and deservedness, Examining the use of business incubators, and Evaluating environment trends

Analyzing these areas of facets is a vital to success in establishing new venture as assessing the industry and the regulatory economy.

1. Researching the Location

Community demographics indicate the strength of purchasing power in the community. Analyzing these types of data;

a. size of population complete with age rangeb. gender ratio and type for marketingc. income group as disposable type of income in the community; low, middle, high, esteem, and corporate levelsd. economic base in the local areae. population trendsf. popular ‘hot’ spots and landmarksg. future infra-structure and development planned by local authority in the area h. overall business climate

2. Determining reliance and deservedness

This facet is to determine what product should be prioritized as a key product which able to change buyer’s mind perception from desire to necessity. This part is very important to create the pilot product introduced be the bolt out of the blue.

Next is to look for key local contacts in this area especially business affluent persons in getting tremendous impact for success. Also know as key players that able to attend promptly to customers once product introduced or during start-up period.

Long term run and futuristic network building can be done determined through physical local development plan in future (refer Item 1g and 1h) including future local supports.

3. Examining the use of business incubators

There are many definitions on business incubators. Through my profound learning, business incubators much better to be done by implementing outsource and or network agents system. This is imperative to reduce fixed costs in the venture and helps much in reducing BEP (Break Even Point) value.

The main thing that venture location highly support services in term of financial, managerial, technical, and administrative are available and shared with network agents through outsource system.

4. Evaluating environment trends

At the earlier or start-up stage it’s uneasy to determine the true environment trend unless for the specific tradition challenge for years or centuries. The best way to evaluate is by using the following sources;

a. Gauge the local source b. Investigate the factsc. Locale people (customer) behaviord. Several local related organization or authority bodye. Web infog. Third party independence and non-profit category of report

Chapter 8.0 : Marketing Research for New Ventures

What are the objectives in market research for new ventures?

The importance of having market research enabling management team to study and learn about changes happening in the market much quicker than competition. The objectives are;

1. To determine the available size of rivals (if any) and their weakness

2. To ensure the pioneering and leading factors

3. To review the importance of marketing research for new venture

4. To present useful contributing factors for near future rapid development

5. To measure the effectiveness of marketing concept; philosophy, segmentation, and customer behavior or orientation

6. To establish precise marketing plan

7. To supply precise details for SWOT Analysis in marketing

8. To determine the quality of gradual growth in venture

9. To introduce effective marketing tool

10. To decide which suitable marketing, advertisement, and sales strategies during start-up period

Chapter 8.1 : Element of Marketing Success

1. Leadership2. Listening3. Teamwork4. Coordination5. Focus6. Accountability7. Flexibility8. Continuity9. Insight10. Compensation plan

Leadership: an owner to one business established clear vision defined to all sub-ordinates, employees, related parties for them to initiate which also includes exciting and rewarding.

Listening: business’s owner provides special channel for customers to forward their constructive comments complete with comment categories. Promptly attend to their comments with polite and quality in responding, customers are very proud for being listening their need through their comments.

Teamwork: Solicit team members’ ideas with high sharing value in team building management making team member creatively produce new marketing force in generating high sales figure.

Coordination: Common problematic “shadow reasons” does not exist; such as out-of-stock, delay in product delivery, pricing inconsistencies, and low quality customer service.

Focus: Unified market target and audience making sales team very comfortable to pin point their target group.

Accountability: Very clear in setting quantifiable goals for each program introduced or very initiative. Action measured and tracked for determining right approach to reproduce what works best.

Flexibility: Respond quickly to changes in marketplace as consumers are fickle.

IMPORTANT IN EXAM

Chapter 8.2 : Developing the Marketing Concept

Marketing Concept is very useful in preparing Marketing Plan where it based on three (3) key elements; Marketing Philosophy, Marketing Segmentation, and Customer Behavior.

Marketing Philosophy

Marketing philosophy is very important in new venture and there three (3) types distinct type of marketing philosophies; production driven, sales driven, and consumer driven.

Production driven philosophy is a method where entrepreneur produce genuine and quality product efficiently and think about sales later. Normally, this method used by high-tech product in new invention category.

Sales driven philosophy focuses on personal selling and advertising in getting customers. An example is new auto-dealers relies much on sales driven philosophy. This type of philosophy also surface during products overabundance in the saturated marketplace.

Consumer driven philosophy very independent which it relies on research data on consumer preferences, necessity, desires BEFORE product actually begin. This type of philosophy much effective but not many entrepreneurs can adopt it.

Three (3) Major Influence Factors Deciding Selection

1. Competitive pressure2. Entrepreneur’s background3. Short-term focus

Over the long run consumer driven philosophy is the most useful and giving most successful results. Although it takes time and use costs in doing marketing research at pre-production stage to one specific product or products selected in the venture.

To cut down marketing research’s costs, the competitive information can be obtained through networking, related product available in open market, value chain, companies with related competencies, and internet.

Marketing Segmentation

Market segmentation primarily based on demographic research to identify the target sales group. Levels of income group in the population taken into account; low, middle, high, esteem, and corporate; determine where the product should be introduced at the start-up stage. Age factor accounted as next focal point support in the research. In demographic research, it also includes size of population, population education level, cultures, customs, geography, hot spot landmark, tourist hot spot, and community life calendar events.

An example;

To produce ice cream product, entrepreneur has to do research before produce varieties of ice cream in term of shape, taste, wrapping, etc. to be introduced as there are levels of ages and the selling price must relate to the community level of income group.

Customer Behavior

Customer behavior relies on human characteristic and the two (2) are personal characteristics and psychological characteristics.

Personal characteristics

1. Social class2. Income3. Occupation4. Education5. Housing6. Family influence7. Time Orientation

Psychological characteristics

1. Nature of needs (desire or necessity or stockpile)2. Perceptions (cosmopolitan or prestige or local)3. Self-concept (elite or activist or community)4. Aspiration group (idolism) 5. Reference groups (sports, social, etc.)

Chapter 8.3 : Marketing Stages For Growing Ventures

The four (4) stages are; Entrepreneurial marketing, Opportunistic marketing, Responsive marketing, and Diversified marketing. To remember the sequence of it, better memorize as EORD.

The breakdown of “Marketing Stages For Growing Ventures” related to Marketing strategy, Marketing organization, Marketing goals, and Critical success factors

Stage 1: Entrepreneurial Marketing

Marketing Strategy [ Market niche ]Marketing Organization [ Informal, flexible]Marketing Goals [ Credibility in the marketplace ]Critical Success Factors [ A little help from your friends ]

Stage 2 : Opportunistic Marketing

Marketing Strategy [ Market penetration ]Marketing Organization [ Sales management ]Marketing Goals [ Sales Volume ]Critical Success [ Factors Production economies ]

Stage 3 : Responsive Marketing

Marketing Strategy [ Product-market development ]Marketing Organization [ Product-market development ]Marketing Goals [ Customer satisfaction ]Critical Success Factors [ Functional coordination]

Stage 4 : Diversified Marketing

Marketing Strategy [ New-business development ]Marketing Organization [ Corporate and divisional levels ]Marketing Goals [ Product life cycle and portfolio management]Critical Success Factors [ Entrepreneurship and innovation

Chapter 8.4 : Marketing Planning

What is market planning?

Market planning is the process of determining a clear, comprehensive approach to the creation of customers. (remember in your project paper or in exam, you must write the word 'process', in the sentence of answer; lax in writing the word will gets no mark)

For developing this plan, the following six (6) elements are critical:

1. Marketing research

Determining who the customers are, what they want, and how they buy.

2. Sales research

Promoting and distributing products according to marketing research findings.

3. Marketing information system

Collecting, screening, analyzing, storing, retrieving, and disseminating marketing information on which to base plans, decisions, and actions.

4. Sales forecasting

Coordinating personal judgment with reliable market information.

5. Marketing plan

Formulating plans for achieving long-term marketing and sales goals.

6. Evaluation

Identifying and assessing deviations from marketing plan.

Chapter 8.5 : Marketing Research

What is so important to comprehensively perform marketing research?

Identify customers, target market, and to fulfill their desires.

The warrant consideration:

1. The company’s major strengths and weakness(look for new opportunities)

2. Market profile(identify current market and service needs)

3. Current and best customers(take their feedback and look for market niche)

4. Potential customers(target this group to be current customers)

5. Competition

(identify rivals to lead e.g. create contest, etc.)

6. Outside factors(determine threats)

Chapter 8.6 : Sales Research

Why needs to have ‘Sales Research’

Matching customer profile with sales priorities is a major goal in sales research.The list of potential questions in this research to be answered;

1. Do salespeople learned and practiced quality time management?

2. Do salespeople learned and practiced quality communication skills?

3. Do salespeople learned, practiced, and implementing the basic calculation for ROI and BEP Analysis?

4. What type of control tools used by management team to monitor and control sales made by salespeople?

5. Does administration team provides sales training program to salespeople?

6. Does the sales force contact ‘decision maker’?

7. Are territories aligned according to sales potential and salespeople’s abilities?

8. Do salespeople getting the right sales product knowledge?

9. Do salespeople using the right tools in sales account updating?

10. Do the salespeople understand the potential customer needs?

11. Do salespeople given the right technique in identifying their potential target group?

12. Do salespeople efficiently reachable to their potential customer?

13. Does management team promptly contact salespeople if there is change in sales policy?

IMPORTANT IN EXAMChapter 8.7 : Marketing Plans

Marketing plans are part of a venture’s overall strategic effort.How to prepare marketing plans? Follow this basic five (5) steps;

Step 1: Apply ‘Marketing Concept’

Refer ‘Chapter 8.2 : Developing the Marketing Concept’, which includes marketing philosophy, marketing segmentation, and customer behavior.

Step 2: Account Projections

Prepare projection cashflow, profit and loss, and balance sheet. All costs must refer to all related details in Step 3, Step 4, and Step 5. This is very important to relate Step 1 and Step 2 matching and as part of financial target achievement and control in reality. From this point, it develop specific sales plan for the current fiscal period.

Step 3: Develop Marketing Strategies

It’s needed to determine short-mid-long term goals. It includes advertising, sales promotion campaign, internet marketing (web site which provides direct interaction with customers, bulk e-mailing, etc.), telemarketing (support sales and after-sales-service, bulk or grouping ‘SMS’ sending, etc.), pamphlets or leaflets dissemination, newspaper and multi-media advertisement, online and offline networking to increase sales force, and complete with contingency plan.

Step 4: Develop product/service strategies

Identifying the end-users, wholesalers, and retailers matched their needs and specifications. Step 4 must inter-related with Step 3.

Step 5: Develop sales strategies

Determine a pricing structure as specific selling price attracted customers. Select type and product quality to match the sales target group e.g. the same product but in various sizes of container (pack) with the respective reasonable price. Small container (pack) for low income group but they can still enjoy the same quality.

KEY QUESTION IN EXAMChapter 9.0 : Financial Preparation for Entrepreneurial Ventures

In the financial segment, the key component financial condition of a business and or company venture at a certain date is ‘Balance Sheet’. Balance sheet must follow the basic traditional accounting equation which is assets equals to the sum of liabilities and owner’s equity;

Assets = Liabilities + Owner’s Equity

(Owner’s Equity in plain explanation it is ‘Owner’s Capital’)

BASIC FLOW OF THE STATEMENT OF ACCOUNTS

General ledger > Cash Flow > Profit and Loss > Balance Sheet

In my explanation I will use the simple (common) word as possible to readers easily understand the real flow of the explanation except for the specific academic term.

The Importance of Financial Information for Entrepreneurs General ledger account is a primary book keeping data account which collect financial inflow and outflow notes (receipts, payment vouchers, payment invoices, etc.), array accordingly to the date sequence, and the flow total amount base on daily close date which finally ended with monthly general total amount for each month. It’s also known as primary account reference database.

The importance of general ledger is alerting entrepreneur to seriously take concern pieces of information on every income received and outcome spent.

Cash Flow account consists of financial data details carried forward from general ledger and format the monthly flow statement of this data in sequence to the respective parts;

Part 1 - income or revenuePart 2 - outcome or expensePart 3 – the differences between Part 1 and Part 2Part 4 – net cash flowPart 5 – ending cash balance

Important Note:

The ‘net cash flow’ for the first month (at beginning only) is the value represents how much money does an entrepreneur invested their own cash ‘pocket money’ (Owner’s Equity)

The ‘ending cash balance’ of the first month automatically carried or brought forward be the ‘net cash flow’ for the second month. This type of flow is continuous in the system, which means, the previous month’s ‘ending cash balance’ be the ‘net cash flow’ for next month.

Profit and Loss account information measures the success of business. It’s a compilation data related and supplied by Cash Flow account data details. It contains the carried forward data form the previous month to the current month, continuously for each month, and the differences in total amount form the results of the operation either for ‘profit’ or ‘loss’ value.

Balance sheet account details the items the company owns (assets) and the amount company owes including interests bearing (liabilities). Assets divided into two (2) parts; current assets and fixed assets. Current assets termed as any item considered easy type of liquidation into cash money.

Current assets details are the values of; (example)

1. Profit and Loss account (business operation)2. Saving/Cash money-in-hand 3. Cash deposit of any type e.g. fixed deposit, trust account, etc.4. Interest earnings5. etc, (easy type of liquidation)

Fixed assets details are the values of the current or present market value to the listed properties such as land, building, vehicles, machinery, office properties (automation and equipments), machinery, etc.

Assets = Liabilities + Capitals

(Current Assets + Fixed Assets) = (Current Liabilities + Interest Bearings) + (Initial Capital + Additional Capital)

Chapter 9.1 : Preparing Financial Statements (Introduction)

We heard every year one country has to present the country’s ‘Annual Budget’ in the parliament. From this nation event, we should already understood about how important is a ‘budget’ as it’s one of the most powerful tools the entrepreneur can use in planning financial operations.

There are three (3) common types of budget; operating budget, cash budget, and capital budget.

What is the ‘Operating Budget’?

The operating budget is a statement of estimated income and expenses over a specific period of time.

What is the ‘Cash Budget’?

The cash budget is a statement of cash receipts and expenditures over a specific period of time. It’s also known as ‘Cash Flow Budget’.

What is the ‘Capital Budget’?

The capital budget is used to plan expenditures on assets whose returns are expected (projected) to last beyond one year.

From those three (3) common budgets calculated, then the preparation of pro forma financial statements can be processed or started.

Before I explain it in details on the respective common budget, you need to have knowledge about financial glossary to academically understand the all financial terms involved in the explanations in the next sub-chapter 9.2 (financial glossary).

Chapter 9.2 : Preparing Financial Statements - Financial GlossaryQuote:

READERS can press 'Ctrl+F' keys to searchAccrual system of accounting : A method of recording and allocating income and costs for the period in which each is involved, regardless of the date of payment or collection. A figure of amount and details of payee accounted as paid but in actual it will be paid later.

Asset : Anything of value that is owned by business owner (personally) or owner’s business.

Balance sheet : An itemized statement listing the total assets and liabilities of owner’s business at a given moment and also known as a statement of condition. (Chapter 9.0)

Capital : The amount invested in a business by the proprietor(s) or stakeholders or stockholders. The money available for investment or money invested. (Chapter 9.0)

Cash flow: The schedule of your cash receipts and disbursements. (Chapter 9.0)

Cash system of accounting : A method of accounting whereby revenue and expenses are recorded when received and paid, respectively without regard for the period to which they apply.

Collateral : Property you own that you pledge to the lender/financier as security of loan until the loan is repaid.

Cost of goods sold : This is determined by subtracting the value of ending inventory from the sum of the beginning inventory and purchases made during the period. Gross sales less cost of goods sold gives you gross profit.

Current assets : Cash and assets that can be easily converted to cash, such as accounts receivable and inventory. Current assets should exceed current liabilities. (Chapter 9.0)

Current liabilities : Debts you must pay within a year. (Chapter 9.0)

Depreciation : Lost usefulness; expired utility; the minimum of service yield from a fixed asset or fixed asset group that cannot or not be restored by repairs or replacement of parts.

Equity or Net Worth : An interest in property or in a business, subject to prior creditors. An owner’s equity in the business is the difference between the value of the company’s assets and the debt owed by the company. For an example, I purchase assets by borrowing money $100,000 for which I pay $150,00 as full payment, my equity is $50,000. (Chapter 9.0)

Expense : An expired cost; any item or class or type of cost (or loss form) carrying on an activity. That is why I apply in my daily life, spend is loss, for me to easily understand for what is the academic meaning of spending or expense.

Financial statement : A report summarizing the financial condition of a business. It normally includes a balance sheet and an income statement.

Gross profit : Sales less the goods sold or revenue minus expenses or selling price minus capital. All are in gross.

Interest : The cost of borrowing money. Whereby, the full payment value higher than borrowing.

Income statement : it’s also known as ‘Profit and Loss Statement’. A statement summarizing the income of a business during a specific period. (Chapter 9.0)

Liability : Money you owe to your creditors which represent a claim against our assets. (Chapter 9.0)

Loss : the expenses greater than the income or revenue. Also selling prices lower than capital.

Nett profit : total income for the period less total expenses for the period.

Personal financial statement : A report summarizing your personal financial condition. Normally it includes a listing of your assets, liabilities, large monthly expenses, and sources of income.

Profit : (See Net Profit and Gross Profit) as “Profit” usually refers to net profit. In common explanation, revenue is greater than expenses or selling price higher than capital.

Profit and loss statement : Same as income statement.

Variable cost: Cost that vary with the level of production on sales, such as direct labor, materials, and sales commissions. In our daily life, the variable costs are electric bill, water bill, etc. whereby in monthly it varies in each month which based on consumption.

Working Capital : The excess of current assets over current liabilities. (Current Assets - Current Liabilities)

Chapter 9.2 : Preparing Financial Statements - The Operating Budget

The first step in creating an Operating Budget is the preparation of the Sales Forecast. Sales forecast can be prepared in many several ways. One way is to implement a statistical forecasting technique such as simple linear regression.

Simple linear regression is a technique in which a linear equation states the relationship among three (3) variables;

Y = a + bc

‘Y’ is a dependent variable which depends on the values of a, b, and c.

‘a’ is a constant (in regression analysis, Y is dependent on variable ‘c’, all other things held constant)

‘b’ is a slope of the line (the change in ‘Y’ divided by the change in ‘c’)

‘c’ is an independent variable (it’s not dependent on any of other variables)

How to estimate sales?

‘Y’ is a variable used to represent the expected sales.

‘c’ is the variable used to represent the factor on which sales are dependent.

In reality, some business may believe their sales are dependent on their advertising expenditures, whereas others may believe theirs on other variables; such as walk-in from product driven factor, mouth-to-mouth promotion from customer behavior driven factor, and sales force from sales driven factor, etc.

When using regression analysis, the entrepreneur will draw conclusions about relationship between, for example, products sales and advertising expenditures.

Another example;

1. If no money is spent on advertising, total sales will be $10,0002. For every dollar spent on advertising, sales will be increased by two times that amount.

Relating these two observations yields the following simple linear regression formula;

Y = a + bc

‘Y’ = projected sales‘a’ = $10,000‘b’ = 2 (which is two times)‘c’ = advertising expenditures

Therefore;

Y = $10,000 + 2c

By graph illustration;

Y = Projected sales

↑→ x = Advertising expenditures

The last step in preparing the operation budget is to estimate the operating expenses for the period and the three (3) key key concept in developing an expense budget are fixed cost, variable cost, and mixed cost;

A fixed cost is one that does not change in response to changes in activity for a period of time. Rent, depreciation, and certain salaries are examples.

A variable cost is the one that changes in the same direction as and in direct proportion to changes in activity. Direct labor, direct materials, and sales commissions are examples.

Mixed costs are a blend of fixed and variable costs. An example is utilities, since part of this expense would be responsive would be responsive to change in activity, and the rest would be a fixed expense, remaining relatively stable over the budget period. Mixed costs can present a problem for management in that it is sometimes difficult to determine how much of the expense is variable and how much is fixed.

After the expenses have been budget, the sales, cost of goods, and expense budget are combined to form the operating budget cost.

After the operating budget cost has been prepared, the entrepreneur can proceed to the next phase of the budget process, the Cash-Flow Budget.

Chapter 9.3 : Preparing Financial Statements - The Cash-Flow Budget

The first step in the preparation of the cash-flow budget is the identification and timing of cash inflows. The cash inflows will come from three sources;

1. cash sales2. cash payment received on account3. loan proceeds

Not all firm’s sales revenues are cash. In an effort to increase sales , most business will allow some customers to purchase goods on account. Consequently, part of the funds will arrive later periods and will be identified as cash payment received on account (accrual).

Loan proceed represent another form of cash inflow that is not directly tied to the sales revenue. A firm may receive loan proceeds for several reasons, for example, the planned expansion of the firm (new building and equipment) or meeting cash-flow problems stemming from an inability to pay current bills.

Next will be the FINAL STEP in the budget process which is the preparation of PRO FORMA STATEMENT.3

Chapter 9.4 : Preparing Financial Statements – Pro Forma Statements This is the final step in the budget process, Pro Forma Statements (PFS) which are projections of a firm’s financial position over a future period (pro forma income statement) or on a future date (pro forma balance sheet).

In the normal accounting cycle, the income statement is prepared first and then the balance sheet. Similarly, in the preparation of PFS , the pro forma income statement is followed by the pro forma balance sheet.

THE KEY STEPS

1. Prepare pro forma income statements for each month in the budget period,

2. Each month presents the anticipated income and expense for that particular period,

3. The Item 2 must followed the monthly pro forma income statement do,

4. Combines all months of the year.

(see Chapter 9.0)

The process for preparing a pro forma balance sheet (see Chapter 9.0)is more complex. The last balance sheet prepared BEFORE the budget period began, the operating budget, and the cash-flow budget are needed in preparing balance sheet.

Starting with the beginning balance sheets balances the PROJECTED CHANGES as depicted from the budget are ADDED to create the projected sheet totals.

After preparing the pro forma balance sheet, the entrepreneur should verify the accuracy by using the application of the traditional accounting equation;

Assets = Liabilities + Owner’s Equity(see Chapter 9.0)

SUMMARY OF ACCOUNT CHANGES FOR PRO FORMA BALANCE SHEET

Cash: Begin with the original cash balance, and add (or subtract) the change in cash as depicted on the cash-flow budget.

Account receivable: Examine the last couple of months on the cash-flow budget to determine what charges will be included in he account receivable. Also, be sure all of the original receivables have been accounted for.

Inventory: This figure can be picked up from the cost-of-goods budget

Fixed assets: This number will probably remain the same; however, any changes can be picked up on the cash-flow budget from an analysis of the loan proceeds.

Account payable: Again, examine the last couple of months on the cash-flow budget, and this time analyzing the purchases to determine what purchases will not have been paid for.

Loans/notes payable: Analyze the loan proceeds. In addition, interest will have to be accrued in a separate interest-payable account.

Capital: The major item to be included here is the projected net income for the budget period. It’s also know as owner’s equity.

Chapter 9.5 : Preparing Financial Statements – Capital Budgeting

What is capital budgeting?

A technique the entrepreneur can use to help plan for capital expenditures.I will provide an example for you to easily understand what type of venture that needs capital budgeting as nowadays many talking on real estate or property investment. Buy and

sell a house for capital budgeting, which means, if you want to buy a house at the selling price $100,000 and you want to sell it at $130,000 in certain period.

From the above example, your projection gross profit is $30,000. You paid for its upfront or down payment money for $5,000. Once it’s sold your capital is expanded to $25,000 from $5,000 (which you can keep as it came from your pocket money) and $25,000 will be the solid initial capital for your next property investment.

From your $25,000 you want to buy another house with intention to sell it for your capital gaining. This is called capital expenditure in capital budgeting, whereby it involved time value.

There are three (3) common techniques used by entrepreneurs in preparing capital budgeting; Payback method, Net present value (NPV), and Internal Rate return (IRR).

Payback method sometimes called as ‘payback period’. In this method the length of time required to ‘payback’ the original investment is determining criterion. Any venture that requires a longer period will be rejected, and falls within the time frame will be rejected.

Expected Returns = X(1 – T) + DepreciationFrom the above formula in Payback method;

X = Anticipated change in net incomeT = Applicable tax rateDepreciation is computed on a straight-line basis which is equals to;= Cost/Life

Life means period of time.

One of the problems with the payback method is that it ignores cash flows beyond the payback period. Thus, it’s possible for the wrong decision to be made. Many firms like to use this payback method with three (3) great reasons;

1. It’s very simple to use in comparison to other methods,2. Venture with a faster payback period normally have more favorable short-term effect on earnings, and3. If a firm is short on cash, it may prefer to use payback method because it provides a faster return of funds.

Net present value (NPV) is a technique that helps minimize some of the shortcomings of the payback method by recognizing the future cash flows beyond the payback period. The concept works on the premise that a dollar today is worth a dollar in future.

This procedure is referred to as discounting the future cash flows, and the discounted cash value is determined by the present value of the cash flow, the steps of using this approach;

1. Find the present value of the expected net cash flows of the investment2. Discounted at the appropriate cost of capital 3. The value from Step 2 subtract the initial cost outlay of the project4. The value from Step 3 is the net present value of the proposed project.

Form the many projects calculated by using NPV technique the entrepreneur can select the project with the highest NPV. ‘Excel’ program provides this method of calculation under ‘financial’ tool.

Internal Rate of Return (IRR) is similar to NPV and ‘Excel’ program provides this method of calculation where the future cash flows are discounted. However, they are discounted at a rate that makes the NPV of the project equals to zero.

The rate is referred to as the internal rate of the project. The project with the highest rate of return is the selected. Thus a project that would be selected under the NPV method also would be selected under IRR method. IRR is the best method among the three (3) methods.

Use 'Excel' program much more easy to calculate IRR including to calculate house monthly rental earnings to compensate with bank's loan interest bearing and to know when is the suitable time to sell the purchased house or houses.

Chapter 9.6 : Preparing Financial Statements – Break-Even Analysis

BREAK-EVEN POINT ANALYSIS

In today’s competitive market place, entrepreneurs need relevant, timely, and accurate in formation that will enable them to price their products and services competitively and yet be able to earn a fair profit. Break-even analysis supplies this information.

What is Break-Even Point (BEP)?

Break-even analysis is a technique commonly used to assess expected product profitability. It helps determine how many units must be sold in order to break even at a particular selling price.

In fact, it also can calculate a single item, for example, the value of BEP to a cup of tea or a plate of noodle sell at the stall or night market or even at our own house.

Break-Even Point (BEP), the formula;

= Fc / [1 - (Vc/Re)]Fc is Fixed costVc is Variable costRe is Revenue; also as Sp is Selling price.

Key Question in ExamChapter 9.7 : Preparing Financial Statements – Ratio Analysis

What is financial ratio analysis?

Financial ratio analysis is financial statement anticipate conditions

as a starting point for planning action that influence the course of events.

Financial ratio analysis is very important to owners, managers, and creditors. More important than the simple calculation of formulas are the categories that explain what each ratio measures and what each ratio tells an entrepreneur.

Financial ratio analysis can be applied from two directions, vertical analysis and horizontal analysis. Vertical analysis is the application of ratio analysis to one set of financial statement. Here, an analysis ‘up and down’ the statements is done to find signs of strengths and weakness. Horizontal analysis looks at financial statements and ratios over time. In horizontal analysis, the trends are critical: Are the numbers increasing or decreasing? Are particular components of the company’s financial position getting better or worse?

FINANCIAL RATIOS: Ratio, Formula, Measure, and Tell

Ratios: Owners, Managers, Short-Term Creditors, and Long-Term CreditorsRatio: OwnerComponent : Return on Investment (ROI) Formula: Net income/Average Owner’s EquityWhat it measures: Return on owner’s capital, when compared with return on asset, it measures the extent of financial leverage is being used for or against the ownerWhat it tells: How well is this company doing as an investment

Ratio: OwnerComponent : Return on Assets (ROA) Formula: Net Income/Average Total AssetsWhat it measures: How well assets have been employed by managementWhat it tells: How well has management employed company assets? Does it pay to borrow?

Ratio: ManagersComponent : Net Profit Margin Formula: Net Income/SalesWhat it measures: Operating efficiency; the ability to create sufficient profits from operating activitiesWhat it tells: Are profit high enough, given level of sales/

Ratio: ManagersComponent : Asset Turnover Formula: Sales/Average Total Assets

What it measures: Relative efficiency in using total resources to produce outputWhat it tells: How well are assets being used to generate sales revenue?

Ratio: ManagersComponent : Return on Assets (ROA) Formula: (Net Income/Sales) x (Sales/Total Assets)What it measures: Earning power on all assets; ROA broken into its logical parts; turnover and marginWhat it tells: How well has management employed company assets?

Ratio: ManagersComponent : Average Collection Period Formula: (Average Account Receivable/Annual Credit Sales) x 365What it measures: Liquidity of receivables in terms of average number of days receivables are outstandingWhat it tells: Are receivables are coming too slow?

Ratio: ManagersComponent : Inventory Turnover Formula: Cost of Goods Sold Expense/Average InventoryWhat it measures: Liquidity of inventory; the number of times it turns over per yearWhat it tells: Is too much cash tied up in inventories?

Ratio: ManagersComponent : Average Age of Payables Formula: (Average Accounts Payable/Net Purchasers) x 365What it measures: Approximate length of time a firm takes to pay it bills for trade purchasersWhat it tells: How quickly does a prospective customer pay its bills?

Ratio: Short-Term CreditorsComponent : Working Capital Formula: Current Assets – Current LiabilitiesWhat it measures: Short-term debt-paying abilityWhat it tells: Does this customer have sufficient cash or other liquid assets to cover its short term obligations?

Ratio: Short-Term CreditorsComponent : Current Ratio Formula: Current Assets/Current Liabilities What it measures: Short-term debt-paying ability without regard to the liquidity of current assets What it tells: Does this customer have sufficient cash or other liquid assets to cover its short-term obligations?

Ratio: Short-Term CreditorsComponent : Quick Ratio Formula: (Cash + Marketable Securities + Account Receivable)/Current Liabilities What it measures: Short-term debt-paying ability without having to rely on inventory sales What it tells: Does this customer have sufficient cash or other liquid assets to cover its short-term obligations?

Ratio: Long-Term CreditorsComponent : Debt-to-Equity Ratio Formula: Total Debt/Total EquityWhat it measures: Amount of assets creditors provide for each dollar of assets the owners provideWhat it tells: Is the company’s debt load excessive?

Ratio: Long-Term CreditorsComponent : Times Interest Earned Formula: [Net Income + (Interest + Taxes)] / Interest Expense What it measures: ability to pay fixed charges for interest from operating profitsWhat it tells: Are earnings and cash flows sufficient to cover interest payments and some principal repayments?

Ratio: Long-Term CreditorsComponent : Cash Flow to Liabilities Formula: Operating Cash Flow/Total Liabilities What it measures: Total debt coverage; general debt-paying abilityWhat it tells: Are earnings and cash flows sufficient to cover interest payments and some principal repayments?

IMPORTANT IN EXAMChapter 9.8 : Preparing Financial Statements – Decision Support System (DSS)

What is ‘Decision Support System’ (DSS)?

A technique to manage financial resources, facilitate the financial process through the use of integrated pro forma financial statements and the generation of alternatives that can be quickly explored.

It uses specific ratio formula, calculates, measures and tells the meaning in

dollars and cents; for balance sheet ratio, income statement ratio, overall efficiency ratio, and specific efficiency ratio.

Ratio Name: Balance Sheet Ratio - CurrentHow to calculate: Current Assets/Current LiabilitiesWhat It Means In Dollar and Cents? : Measures solvency; the number of dollar in current assets for every $1 in current liabilities.

Ratio Name: Balance Sheet Ratio - QuickHow to calculate: (Cash + Accounts Receivable)/Current Liabilities What It Means In Dollar and Cents? : Measures liquidity; the number of dollars in cash and account receivable for each $1 in current liabilities.

Ratio Name: Balance Sheet Ratio - CashHow to calculate: Cash/Current LiabilitiesWhat It Means In Dollar and Cents? : Measures liquidity more strictly; the number of dollars in cash for every $1 in current liabilities.

Ratio Name: Balance Sheet Ratio – Debt To WorthHow to calculate: Total Liabilities/Net WorthWhat It Means In Dollar and Cents? : Measures financial risk; the number of dollars of debt owed for every $1 in net worth.

Ratio Name: Income Statement Ratio – Gross MarginHow to calculate: Gross Margin/SalesWhat It Means In Dollar and Cents? : Measures profitability at the gross profit level; the number of dollars of gross margin produced for every $1 of sales.

Ratio Name: Income Statement Ratio – Net MarginHow to calculate: Net Profit before Tax/SalesWhat It Means In Dollar and Cents? : Measures profitability at the net profit level; the number of dollars of net profit produced for every $1 of sales.

Ratio Name: Overall Efficiency Ratio – Sales to AssetsHow to calculate: Sales/Total Assets What It Means In Dollar and Cents? : Measures the efficiency of total assets in generating sales; the number of dollars in sales produced for every $1 invested in total assets.

Ratio Name: Overall Efficiency Ratio – Return on Assets (ROA)How to calculate: Net Profit before Tax/Total AssetsWhat It Means In Dollar and Cents? : Measures the efficiency of total assets in generating net profit; the number of dollars in net profit produced for every $1 invested in total assets.

Ratio Name: Overall Efficiency Ratio – Return on Investment (ROI)

How to calculate: Net Profit before Tax/Net WorthWhat It Means In Dollar and Cents? : Measures the efficiency of net worth in generating net profit; the number of dollars in net profit produced for every $1 invested in net worth.

Ratio Name: Specific Efficiency Ratio – Inventory TurnoverHow to calculate: Cost of Goods Sold/InventoryWhat It Means In Dollar and Cents? : Measures the rate at which inventory is being used on an annual basis.

Ratio Name: Specific Efficiency Ratio – Inventory Turn-DaysHow to calculate: 360/Inventory TurnoverWhat It Means In Dollar and Cents? : Converts the inventory turnover ratio into an average “days inventory on hand” figure.

Ratio Name: Specific Efficiency Ratio – Account Receivable TurnoverHow to calculate: Sales/Accounts ReceivableWhat It Means In Dollar and Cents? : Measures the rate at which accounts receivable are being collected on an annual basis.

Ratio Name: Specific Efficiency Ratio – Average Collection PeriodHow to calculate: 360/Account Receivable TurnoverWhat It Means In Dollar and Cents? : Converts the account receivable turnover ratio into the average number of days the firm must wait for its account receivable to be paid.

Ratio Name: Specific Efficiency Ratio – Accounts Payable TurnoverHow to calculate: Cost of Goods Sold/Accounts PayableWhat It Means In Dollar and Cents? : Measures the rate at which accounts payable are being used on an annual basis.

Ratio Name: Specific Efficiency Ratio – Average Payment PeriodHow to calculate: 360/Accounts Payable TurnoverWhat It Means In Dollar and Cents? : Converts the account accounts payable ratio into the average number of days a firm must takes to pay its account payable.Chapter 9.9 : Preparing Financial Statements – Summary

Entrepreneurs must learn the three basic or principle financial statements to enhance their knowledge and management skills; the income statement (profit and loss), the balance sheet, and cash-flow statement.

While preparing on those basic statements, entrepreneurs also engage in learning the key budget preparations; the operating budget, the cash-flow budget, the capital budget. It works not only before a business/investment started, but it also a key tools to monitor the running business/investment.

In real business world and the related business activities, account’s pro forma statements are also known as projection account statements. It’s needed in one business plan or business proposal in searching investors and or seeking business loan from money lender or financier or financial institution. From effective account pro forma statements, the investors or financiers can obviously see the business strengths and weaknesses in one business plan the levels of opportunities and threats for their decision making whether worth investment or otherwise.

For a student as academic achievement is concerned, mastering this type of knowledge will be helpful in their future job application. Where, they professed the techniques how to prepare, manage, and monitor account statements; which also really needed in company or business financial management. Able to detect the future financial development in business activities and restructure its financial components once needed.

Much important, entrepreneurs get the right steps what does an opportunity means in term of financial growth and financial ‘disaster’ in investment; short-term, mid-term, and long term.Chapter 9.9 : Preparing Financial Statements – Summary

Entrepreneurs must learn the three basic or principle financial statements to enhance their knowledge and management skills; the income statement (profit and loss), the balance sheet, and cash-flow statement.

While preparing on those basic statements, entrepreneurs also engage in learning the key budget preparations; the operating budget, the cash-flow budget, the capital budget. It works not only before a business/investment started, but it also a key tools to monitor the running business/investment.

In real business world and the related business activities, account’s pro forma statements are also known as projection account statements. It’s needed in one business plan or business proposal in searching investors and or seeking business loan from money lender or financier or financial institution. From effective account pro forma statements, the investors or financiers can obviously see the business strengths and weaknesses in one business plan the levels of opportunities and threats for their decision making whether worth investment or otherwise.

For a student as academic achievement is concerned, mastering this type of knowledge will be helpful in their future job application. Where, they professed the techniques how to prepare, manage, and monitor account statements; which also really needed in company or business financial management. Able to detect the future financial development in business activities and restructure its financial components once needed.

Much important, entrepreneurs get the right steps what does an opportunity means in term of financial growth and financial ‘disaster’ in investment; short-term, mid-term, and long term.Chapter 10.0 : Developing an Effective Business Plan

Introduction

One of the best business plan for your study reference is GENERICO, INC. business plan prepared by Price Water House Coopers in 1997.

Whatever, the business plan which you create will require information specific to your

industry and your company and should be based on real market information and your best-estimate projections.

What is a business plan?

A business plan is the written document details the proposed venture. It must describe current status, expected needs, and projected results of the new business.

The aspect that needs to be covered: the project, marketing, research, essential critical factors to the business success of planned undertaking. It formulates realistic goals, commitment, milestones, and flexibility. It shows where the business to go with the entrepreneur’s roadmap for a successful enterprise.

Realistic goals explained the specific, measurable, and set within time parameters to reach business goals. Commitment from the supportive networks which including employees and team members. Milestones well structured the subgoals achievement and the continuity. Flexibility by means of obstacles must be anticipated, and alternative strategies are well formulated.

What are the objectives of business plan?

A business plan promotes two (2) major objectives; rewards investors in business venture and future practical success development.Chapter 10.1 : Benefits of a Business Plan

The entire business planning process forces the entrepreneur to analyze all aspects of the venture and to prepare the effective strategy to deal with uncertainties that arise.

BENEFITS OF A BUSINESS PLAN

1. The time, effort, research, and discipline needed to put together a formal business plan force the entrepreneur to view the venture critically and objectively.

2. The competitive, economic, and financial analysis included in the business plan subject the entrepreneur to close scrutiny of the assumptions made about venture’s success.

3. Since all aspects of the business venture must be addressed in the plan the entrepreneur develops and examines operating strategies and expected results for outside evaluators.

4. Drives an entrepreneur using the right communication tools for outside financial resources which needs standard preparation of business plan.

5. An effective business plan provides true information in getting more investors. Investors will delve into the pro forma statement details provided for their decision making in pursuing their investment into the proposed business e.g. bank, financier, institution, individual, etc.

6. Pro forma statements written reflected the actual adequate return on equity and the service-to-debt as well.

7. Critical risks factor comprehensively handle through risks management written in business plan also as great tools for investors to determine an entrepreneur is ready to face contingencies and the unprecedented financial risks.

8. A comprehensive and concise overview on the entire business operation gives true and through business financial evaluation.

9. Well explained the continuous plenty opportunities building in business operation: planning, organizing, departmental, and control. Obviously gives proves the quality management and production

Chapter 10.2 : Developing an Effective Business Plan – Do’s and Don’ts

BUSINESS PLAN DO’S AND DON’TS

Executive SummaryDo: Get right to the point Don’t: Write more than a page and a half

ManagementDo: Play up your previous successesDon’t: Paper over the gaps in your team

MarketingDo: Send a product sample, if you can or applicableDon’t: Underprice your services because you failed to get good market data

FinancialDo: Run cash-flow models at different growth rates.Don’t: Inflate or understate your margins

OverallDo: Have a qualified party proofread your plan.Don’t: Forget to use feedback

WHY BUSINESS PLAN FAIL

The plan is constructed around strategies that are defined inaccurately.

The plan, while substantial, cannot be described clearly by management.

The plan lacks detailed information about job responsibilities and operating schedules.

The plan does not state goals and objectives lucidly and in professional terms.

The plan is incomplete. Chapter 10.3 : Elements of a Business Plan - Preparation

Section 1: Executive Summary

Section 2: Business DescriptionSection 3: MarketingSection 4: OperationsSection 5: ManagementSection 6: FinancialSection 7: Critical RisksSection 8: Harvest StrategySection 9: Milestone ScheduleSection 10: Appendix and Bibliography

Section 1: Executive Summary

This section should be written only after other nine sections have been completed and not more with two pages. It is a brief overview directing reader what is to follow and highlighted your strategic points by referring the number of page, respectively.

Section 2: Business Description

A. General description of the businessB. Industry backgroundC. Potential, goals, and milestones of the businessD. Uniqueness of product or service

Section 3: Marketing

A. Research and analysis- 1. Target market (customers) identified- 2. Market size and trend- 3. Competition and the list of competitors identified- 4. Estimated market share

B. Marketing Plan- 1. Market strategy – sales and distribution- 2. Pricing- 3. Advertising and promotions

Section 4: Operations

A. Identify location- 1. Advantages- 2. Zoning- 3. Taxes

B. Proximity to suppliesC. Access to transportation

Section 5: Management

A. Management team – key personnelB. Legal structure – stock agreements, employment agreements, ownershipC. Board of Directors, advisors, consultants, and other legal panels

Section 6: Financial

A. Financial forecast/projection- 1. Profit and loss- 2. Cash flow- 3. Break-even analysis- 4. Cost controls- 5. Budgeting plan

Section 7: Critical Risks

A. Potential problemsB. Obstacles and risksC. Alternative courses of action

Section 8: Harvest Strategy

A. Transfer of assetB. Continuity of business strategyC. Identify successor

Section 9: Milestone Schedule

A. Timing and objectivesB. Deadlines and milestonesC. Relationship of events and future scheduled eventsChapter 11.0 : Assessment and Evaluation of Entrepreneurial Opportunities - Pitfalls in selecting new ventures

The first key area of pitfalls in selecting new ventures;

1. Lack of objective evaluation

No matter who is an entrepreneur, they lack of regular, vigorous, and continuous; study and investigation; while rivals keep moving forward.

2. No real insight into the market

Managerial shortsightedness caused an entrepreneur behind in developing marketing approach.

3. Inadequate understanding of technical requirement

An entrepreneur cannot be too thorough and time consuming on doing research. They must outsource to the right selected and qualified third parties.

4. Poor financial understanding

Ignorant of costs is a victim of inadequate research and planning. This poor factor contributed low current assets to run their business cash flow account effectively.

5. Lack of venture uniqueness

An entrepreneur does not sensitive to be out of box in producing product or service and the pricing strategy, as well. Leading factor is not their priority.

6. Ignorance of legal issues

Ignorance in providing employees’ legal requirement is one of the main sources shortage skillful and productive employers. Ignoring legal requirements devalued the product/service reliability in customer’s perception. No concern on the necessity of patents, trademarks, and copyrights to protect the invention. Reference case: Kanak Gogoi from Guwahati proves no need tertiary qualification to be innovativeChapter 11.1 : Critical factors for new-venture development

The critical factors have to be determined by an entrepreneur after ensuring what type of the product/service fall into marketing philosophy’s element driven factor?. Does it into product driven factor? Or sales driven factor Or customer driven factor.

A NEW VENTURE IDEA CHECKLIST

1. Basic feasibility of the venture: Can it work? Is it legit?

2. Competitive advantages of the venture: what to offer? Leading rivals’ product/service or not? How to maintain the competitive edge?

3. Buyer decisions in the volume: do the identified customers really exist? How many are there in estimate? Where are customers located?

4. Marketing of goods and/or services: what are the costs for advertising and selling? What is the share market? Who will perform the selling function? What is the pricing strategy? Where are the networks?

5. Production of goods and/or services: are sources of supplies available at reasonable price? What are the alternatives during supply shortage? Does delivery on time? Does quality manpower adequate? Which system used for quality control? Does it meet the environment quality control? Do all equipment and machineries well supplied and efficient?

6. Staffing decisions in the venture: are they well recruited? Are they competent? Who will make the decision if the key people leave? What are the benefit plans for them? How to control their infidelity?

7. Control of the venture: what record and filing systems needed? Who will responsible for them? Are there special key controls spared?

8. Financing the venture: how strong is the working capital? do the current assets helping the running cash flow? Who are the backup financiers once urgently needed? Does fixed asset highly liquidate? Backup investors, who are they?Chapter 11.2 : An employee self-assessment

The basic self-assessment is by using SWOT analysis: Strengths, Weaknesses, Opportunities, Threats. This type of assessment is to identify elements that should be enhanced and changed. Strengths are to be fully utilized and weaknesses must take change to strengths zone. In both there are opportunities while negotiating with threats that exist in between.

1. Have each employee do a personal SWOT analysis?2. Have employees go over their SWOT analysis together?3. Acknowledge the good in each-plan toward goals3. Revisit the plan monthly and every quarterly.

Source: Scott Miller, “Have You Done Your SWOT Analysis Lately?” Entrepreneur.com – Your Business (January 14, 2002) http://www.entreprenuer.com

How to assess your strengths?_ where do you excel?_ what points of usefulness in your organization?_ what unusual skill(s) do you bring to your job?_ what experience provides you depth of understanding for the work you do_ what particular needs of your organization do you meet_ what standards do you adhere to that benefit your company

How to assess your weaknesses?_ where do you fall short?_ what types of tasks do you fail to get done on time?_ in what ways do you not work well with fellow staff?_ what skills do you lack that would help you do your job more effectively?_ in what areas have you failed to provide what your organization needs to serve its customers more efficiently and make more profit?

How to assess your opportunities?_ how does your job contribute to the bottom line of the organization?_ how might technology provide you a “leg up” in helping your organization?_ how can you help your organization capitalize on the economic downturn?_ how can you and your job benefit from the many rivals?_ what is going on in your market, your city, your country, and your state that can benefit you and the job you do?

How to assess your threats?_ how does the current economy affect your position?_ how is your organization changing, and will any of those changes make what you do less important?_ do you need to change your function in the organization, take on new responsibilities to remain as useful as before?_ do you perform a particular task that no one has realized is obsolete, but will?

MAKE A PLAN An effective plan should use strengths and confront weaknesses while taking advantage of the opportunities and neutralizing the threats. Chapter 11.3 : Why new venture fail

1. Lack of preparation for Initial Capital and Working Capital.Please refer to Chapter 9.7

2. Lack of research in “Return On Investment” effects the running cash flow.

3. Lack of research on “Break-even” analysis, influenced sales to perform ‘price skimming sales’ method (slash down selling price in hoping getting big volume). Product’s promotion method poorly performed.

4. Poor marketing strategy; less number of identified potential customers and overreliance on one customer.

5. Poor timing in making entry to marketplace and with no leading factor.

6. Overburden with too large amount of debt taking at early stage and there are too many leakage factors in expenditures (spending).

7. Product design and competitive edge problems in the open market or specific marketplaces.

8. Poor management or service for product delivery and customer service slow responding.

TYPES AND CLASSES OF FIRST-YEAR PROBLEMS

1. Obtaining external financing

2. Internal financial management

3. Sales/Marketing

4. Product Development

5. Production/operation management

6. General management

7. Human resources management

8. Economic environment

9. Regulatory environment and insuranceChapter 11.5 : Emerging themes from surviving founders of entrepreneurial firms

1. Look the mirror a lotGet knowing oneself skills and deficiency is very important to an entrepreneur. Skillful in certain area of bailiwick, thing which is to be fully utilized up to mark, deficiency should be outsourced or delegated to the relevant productive parties while do learning from them on on-going basis. The key point in natural self-development and the network, as well.

2. Love your productThe great value to be promoted to customers is to love your product. To reach this value is to use comprehensive feasibility approach method which includes service orientation; technical feasibility and marketability.

Technical feasibility is to attract and satisfy potential customers. The design of the product or service offer is very attractive in appearance. Durability (product) and reliability (product or service) be the customer’s first acceptance for their continuation in purchasing.

Marketability means having great potential in generating sales networks with less marketing

expenditure and high ROI. The powerful sales force done by networks due to the effective marketing plan on the products or services advertised and promoted. From that element, the product or service able to survive in general economic trends which are consumer spending, consumer product searching, and consumer product liking.

3. Honor your customer Taking personal responsibility to satisfy customers in the market served.

4. Treat your people wellTwo categories of people to be treated very well, partners and employees, in obtaining an astute judge of people. In this case, ‘study people’ is the key point of study.

5. Keep your integrityIt is a bedrock principle where it’s able to create leading factor in your business partners and also rivals circle. Chapter 12.0 : Legal Structures for New Business Ventures

Inhere, explanation based on academic learning and the basic principles. In reality legal structure of formation; business and company; different country legalized different Business and Company Acts monitored by respective Registration of Business and Registration of Company under control Company Commission.

Below are the samples of one country ‘Company Formation’;

1.1 Classification Of Companies ( Quick Viewing Click Here )1.2 Issue Of Shares And Debentures ( Quick Viewing Click Here )1.3 Company Formation ( Quick Viewing Click Here )1.4 Statutory Records And Annual Returns ( Quick Viewing Click Here )1.5 Capital Structure ( Quick Viewing Click Here )1.6 Classes Of Shares ( Quick Viewing Click Here )1.7 Loan Capital (Debentures) ( Quick Viewing Click Here )

Basically there are three legal forms of organization; the sole proprietorship, the partnership, and the corporation.Chapter 12.1 : Sole Proprietorship

A sole proprietorship is a registered business wholly owned and operated by one person under Business Act in one country. The owner has the right to all of the profits, bears all liabilities, and obligations. It is an easiest way to legalized one business operation and widely used.

Advantages of Sole Proprietorship- 1. Ease of formation (less formality)

- 2. Sole ownership of profit (no profit sharing as it is individual wholly owned)

- 3. Flexibility management (individual/solo decision making)- Relative freedom from government control (less government interference)

- 4. Freedom from corporate business taxes (owner taxed as individual taxpayer)

Disadvantages of Sole Proprietorship- 1. Unlimited liability (owner wholly bears the liabilities)

- 2. Continuity uncertainty (if the owner ill or dies)

- 3. Capital limited (normally, the owner operates business with less capital)

- 4. Hardly obtaining long-term financing support/backup (lender such as bank and financial institution less interested by taking consideration on Item 1, 2, and 3, as high risk factors)

- 5. The “One-Man-Show” limitation (individual ability to manage, handle, and control the entire business operation alone; limited in term of training, and expertise)

- 6. Expose to bankruptcy easier compare to partnership and corporation. Chapter 12.2 : Partnership

Ordinarily, business registry body needs a valid and legal business partnership agreement during registering partnership form of business.

A partnership is an association of two or more individuals as business partners also know as co-owners. Each individual or person registered as partner owned specific portion of share as stipulated in the valid and legal business partnership agreement. The agreement associated as an endorsement, where the agreement number printed in the certificate of business registration.

Every ‘partner’ contributes skills, money, labor, property accordingly to their stated share portions and the value. For example; Smith and Wilson formed a partnership business with seventy percent and thirty percent of shares, respectively; the value of each contribution of money and/or property and/or skills and/or labor must reciprocates the share percentage.

In the partnership business agreement the following details written;

1. Each partner’s name complete with; the same name printed on the NRIC (National Resident Identity Card) or Passport, NRIC or Passport number, and resident address (domicile).

2. Portion of shares.

3. Duration of agreement and the agreement is revisable and renewable.

4. Category of partner’s characteristic; active or silent, general or limited

5. Portion of profits and losses.

6. Partner’s at inception or later date contribution.

7. Statement of right(s) of continuing partner(s).

8. Salaries and method of disbursement.

9. Windup and dissolution of partner’s death.

10. Method of ‘Release of debts’.

11. Handling method on business expenses.

12. Statement of separate debts.

13. Business conduct authority by each partner.

14. Accounting keeping method; books, records, etc.

15. Future sale of partnership interest.

Some countries applied standard partnership agreement with share of co-ownership only the details should be determined by partners. Chapter 12.3 : Corporation

In reality different corporation of company formation under monitoring and control one's country Companies Act (Year). As a sample to explain it you can refer to these notes;

1.1 Classification Of Companies ( Quick Viewing Click Here )1.3 Company Formation ( Quick Viewing Click Here )

Other true examples;

A. Corporation Company Formation in IndiaB. Corporation Company Formation in USAC. Corporation Company Formation in UKD. Corporation Company Formation in Australia

In academic basic principle and the explanations;

THE HISTORICAL FACT:

A corporation is "an artificial being, invisible, intangible, and existing only in contemplation of the law" - Supreme Court Justice John Marshall (1819).

Advantages of Corporation

1. Authorization of Capital Limitation: in the formation it must state the value of Authorized Capital; 1.5.1 Authorised/Nominal/Registered Capital ( Quick Viewing Click Here ) Chapter: Capital structure

2. Limited Liability: in the formation it must state the value of Paid-up Capital; 1.5.7 Paid Up Capital ( Quick Viewing Click Here ) Chapter: Capital structure

3. Ownership transfer: the sale of ordinary share is allowed through ownership relinquishment; 1.6.1 Ordinary Shares ( Quick Viewing Click Here ) Chapter Classes of shares

4. Authorized and Paid-up Capitals can be raised up: additional amount of current assets and/or fixed assets into the ordinary share value.

5. Expertise and key personal formally can be added up: the Executive Chairman and/or Non-executive Chairman, the Directors, the First Managers (CEO, COO, CFO), and the Second Managers (General Manager and Managers).

Disadvantages of Corporation

1. Business management restrictions: rigid with the law and strictly controlled by Company Act.

2. Director's limitation: as director's ordinary share value represent the 'supremacy of voice' in the corporation, any Director of company who own less will have less superiority.

3. Regulation: strictly controlled by government

4. Organizing expenses: there are many panels of expertise must be deployed by law; company secretary, external auditor(s)/accountant(s); it involves costly disbursement to third party verified professionals.

5. Double taxation: Corporate profits are levied by income taxes and on individual salaries including dividends. .1 CLASSIFICATION OF COMPANIES

There are two basic types of companies, namely; statutory companies and registered companies.

Statutory companies (Statutory Authorities or Bodies) are incorporated under Acts of Parliament and fall outside the scope of this written knowledge.

Registered companies are formed under the Companies Act, 1965. Basically such companies can be grouped into;

(a) public companies;(b) private companies;(c) exempt private companies;(d) foreign companies; and(e) investment companies.

Brief explanations are as follow;

1.1.1 Public Company

A public company is a company which is not a private company. The minimum number of members is two, with no limit on maximum numbers.

Public companies have the advantage of being able to offer its shares and debentures to the public in order to raise capital. Public limited companies have the word Berhad (Bhd.) as part of, and at the end of, their names. Many large companies seek a listing on the stock exchange and, if listed are referred to as listed companies. All listed companies are public companies but not all public companies are listed companies.

Companies may seek a listing on the main board or on the second board of the Kuala Lumpur Stock Exchange (KLSE). While the main board is open to both local and foreign companies, the second board admits only companies incorporated in Malaysia. The second board, launched on November 11, 1988 provides small and medium sized companies which are profitable and have good growth prospect, access to the capital market.

The KLSE listing manuals have laid down the necessary requirements for companies seeking a listing either on the main or second board.

The Securities Commission has, however, revised the Initial Public Offering (IPO) guidelines for companies seeking a listing on the KLSE.

From 1997, the minimum paid-up capital requirement for companies seeking a listing on the main board is RM50,000.00 (no maximum specified) and the company should have traded successfully for five consecutive years earning a minimum after tax profit of RM2,000,000.00 each year and an aggregate after tax profit of not less than RM25,000,000.00 over five years.

Companies undertaking major infrastructure projects can now be listed on the KLSE without having to make profits for five consecutive years provided that these companies have at least 18 years of the concession left with the project costing not less than RM500,000,000.00.

For listing to the second board, the minimum capital requirement is RM10,000,000.00 with a maximum of not more than RM50,000,000.00 and it should have earned at least RM2,000,000.00 in profits for three years in row.

As from January 1998, the Secutirties Commission has also revised the shareholding spread requirement for both boards of the KLSE. Main board companies must have at least 25% of the issued and paid-up capital in the hands of the minimum number of public shareholders holding not less than 1,000 shares each. For companies with a paid-up capital of less than RM100,000,000.00 the minimum number of shareholders is 750 and for company with a paid-up capital more than RM100,000,000.00 the required minimum number of shareholders of 1,000.

For companies on both boards, the minimum number of shareholders should exclude employees of the companies. However, up to 5% of issued and paid-up capital could be held by employees to make the 25% shareholding spread.

Year end results for companies listed on the main board must be announced within 6 months from year end whereas for second board, it must be announced within 3 months from year end.

Foreign-based companies with substantial Malaysian interests with at least 50% paid-up

capital in the hands of Malaysian shareholders having management control and a minimum paid-up capital of RM50,000,000 are allowed to seek a listing in the KLSE. These companies will adhere to the same requirements applicable to main board companies.

1.1.2 Private Company

A private company is one which is prohibited from inviting the public to subscribe for any of its shares or debentures. The number of shareholders is restricted to a maximum of fifty and there is a restriction on the transfer of shares. Many family-owned business and small businesses are registered as private companies. Ownership is usually retained within its family members. Private companies are required to add the words Sendirian Berhad (or Sdn. Bhd.) as part of, and at the end of, their names.

1.1.3 Exempt Private Company

An exempt private company is a private limited company with not more than 20 members. Its shares cannot be held directly or indirectly or indirectly by any other company. An exempt private company need not file its annual accounts with ‘Registrar of Companies’ provided that the company files a certificate, signed by a director, the secretary and the auditor of the company, stating that the company is able to meet its liabilities as and when they fall due.

1.1.4 Foreign Company

A company incorporated outside Malaysia but which carries on business in Malaysia or establishes a place of business in Malaysia is referred to in the Companies Act as a foreign company. Such a company has to lodge certain documents as laid down in section 332 (1) of the ‘Companies Act’ 1965 and pay the appropriate fees before commencing business in Malaysia. A foreign company registered under the ‘Companies Act, 1965’ has the power to hold immovable property in Malaysia.

1.1.5 Investment Company

An investment company is a public company engaged primarily in investments in marketable securities for the purpose of revenue and profit and not for the purpose of exercising control. It is declared an investment company by the proclamation of the ‘Yang Dipertuan Agong’ which can be revoked if the purpose of its formation changes.

The ‘Companies Act, 1965’ also places certain restrictions on investment companies, such as restrictions on investment in other companies for the purpose of exercising control. Neither is it allowed to borrow an amount if the sum of that amount previously borrowed exceeds an amount equivalent to twice its net tangible assets and which has not yet repaid.

A balance sheets of an investment company must show a complete list, descriptions and quantities of investments held as at the date of the balance sheet. The net profits or losses from the purchase and sales of investments must be credited or debited to a reserve account called the “investment fluctuation reserve”.1.3 COMPANY FORMATIONAny two or more persons associated for any lawful purpose can apply to form a company by subscribing their names to a memorandum and complying with the requirements as to the registration of a company.

The constitution of the company must be drawn up prior to the registration of a company.

The constitution of a company comprises of:

(a) the Memorandum of Association; and

(b) the Articles of Association.

The Memorandum of Association regulates the company’s relations with outside persons, i.e. the external affairs of the business. It must contain the following items:

(a) the name of the company;

(b) situation of the company’s registered office;

(c) the objects of the company for which it is formed, i.e., those activities in which the company may legally operate;

(d) statement that the liability of the members is limited (for a limited liability company); for an unlimited liability company, it must state that the liability is unlimited; and

(e) the amount of the authorized capital for each class of shares and the nominal value of each share.

The company’s Memorandum of association may be altered as long as its alterations are permitted by the “Companies Act, 1965”. Examples of such alterations include the change of company’s name, change of objects clause, etc. A special resolution has to be passed when an amendment to the Memorandum of Association is made.

The Articles of Association set out the rules covering the internal affairs of the company such as the rights of shareholders and the powers and duties of the management of the company. Some of the clauses cover include:

(a) the rights of different classes of shareholders;(b) the transfer of shares;(c) the duties, powers and proceedings of directors;(d) notice and proceedings of meetings; and(e) the borrowing power of the company, etc.

The ‘Companies Act, 1965” has a model set of Articles of Association in Table A of the Fourth Schedule. If a company does not lodge its own Articles of Association then Table A of the Fourth Schedule of the “Companies Act, 1965” will become applicable as the Articles of Association of that company.

In contrast to the Memorandum of Association, the Articles of Association may be freely altered or added, subject to section 31(1) of the “Companies Act, 1965”. A special resolution is also required to alter the articles.

Both the Memorandum of Association, the Articles of Association must be signed by at least two persons who are to be the first directors of tha proposed company. After the documents are signed it is binding between the members and the company (not outsiders). These two documents, together with the appropriate fee (based upon the amount of the authorized capital) and other relevant documents, must be lodged with the Registrar of Companies.

Once the Registrar is satisfied that the necessary legal requirements have been met, a Certificate of Incorporation is issued. Upon issuance of the Certificate, a private company may commence business. In the case of a public company, however, it must receive the

Certificate to Commence Business before business may be commenced.

A public company, having a share capital, will raise its funds by issuing shares to the public. To do so, a prospectus is designed setting out the background of the company and circulated to the public, usually through a newspaper and advertisement. The minimum amount of capital to be raised must be specified. After this minimum capital has been raised, the Registrar of Companies will issue a Certificate to Commence Business. Then only can trading operations commence.

Company formation is a more complex process than a sole proprietorship and partnership and is therefore more costly. All organizational costs involved with the establishment of a company are known as preliminary or formation expenses and examples of such expenses are:

(a) registration fees paid to the Registrar of Companies;

(b) fees paid to solicitors for drawing up the Memorandum of Association and Articles and Association;

(c) printing costs of the various documents, e.g., the prospectus; and

(d) payments made to the promoters or organizers of the company. 1.5 CAPITAL STRUCTUREThe capital of a company comprises of shares invested by the owners who are known as shareholders. Share capital can be divided into different types. The entire amount of the capital is not raised in one lump sum but is built up over a period of time as and when the need to increase its funds arises.The following is a list of terms used in connection with the capital structure of a company.

1.5.1 Authorised/Nominal/Registered Capital

This represents the total amount of capital with which the company is registered. This amount must be stated in the Memorandum of Association and the company is not required to issue the total amount immediately. The amount issued to the public must not exceed the total authorised capital. The authorised capital may comprise of more than one class of shares.

1.5.2 Par of Nominal Value

Par value or nominal value is the face value attached to each unit of share, e.g., ordinary shares of RM1/- each means that the par or nominal value is RM1/-. This is the price that the company will change for each share in its initial issue of shares.

1.5.3 Issued Capital

This represents that part of the nominal capital which has been issued to the public for cash or for other consideration. The issued capital may either be partly or fully paid.

1.5.4 Unissued Capital

This is the difference between the authorised capital and the issued capital and represents the amount of capital that the company can still issue to the public.

1.5.5 Called Up Capital

This is the amount of money that the company has called up on the issued capital which the subscribers are required to pay within a specified time.

1.5.6 Uncalled Capital

This is the amount of money on the issued capital that has not been called. In other words, the subscribes are not required to pay up the money yet.

1.5.7 Paid Up Capital

This represents the amount of called up capital that has been paid by the subscribers.

1.5.8 Unpaid Capital

This is the amount of the called up capital that the subscribers failed to pay when the money was called. The unpaid amount is also referred to as call in arrears. 1.5 CAPITAL STRUCTUREThe capital of a company comprises of shares invested by the owners who are known as shareholders. Share capital can be divided into different types. The entire amount of the capital is not raised in one lump sum but is built up over a period of time as and when the need to increase its funds arises.The following is a list of terms used in connection with the capital structure of a company.

1.5.1 Authorised/Nominal/Registered Capital

This represents the total amount of capital with which the company is registered. This amount must be stated in the Memorandum of Association and the company is not required to issue the total amount immediately. The amount issued to the public must not exceed the total authorised capital. The authorised capital may comprise of more than one class of shares.

1.5.2 Par of Nominal Value

Par value or nominal value is the face value attached to each unit of share, e.g., ordinary shares of RM1/- each means that the par or nominal value is RM1/-. This is the price that the company will change for each share in its initial issue of shares.

1.5.3 Issued Capital

This represents that part of the nominal capital which has been issued to the public for cash or for other consideration. The issued capital may either be partly or fully paid.

1.5.4 Unissued Capital

This is the difference between the authorised capital and the issued capital and represents the amount of capital that the company can still issue to the public.

1.5.5 Called Up Capital

This is the amount of money that the company has called up on the issued capital which the subscribers are required to pay within a specified time.

1.5.6 Uncalled Capital

This is the amount of money on the issued capital that has not been called. In other words, the subscribes are not required to pay up the money yet.

1.5.7 Paid Up Capital

This represents the amount of called up capital that has been paid by the subscribers.

1.5.8 Unpaid Capital

This is the amount of the called up capital that the subscribers failed to pay when the money was called. The unpaid amount is also referred to as call in arrears. 1.6 CLASSES OF SHARES

A company may have more than one type of shares. They differ in their voting rights, in priority to receive dividends and in the return of capital in the event of liquidation of the company.The following are the different classes of shares:

1.6.1 Ordinary Shares

All companies must have ordinary shares and generally the ordinary shares comprise the bulk of the company’s capital. It carries the right to vote and the ordinary shareholders are entitled to share in the profits or dividends only after the dividends, if any, have been paid to the other classes. In this sense, ordinary shareholders are considered to be risk takers because should the business fail they can lose their capital. On the other hand, should the business prove to be successful, the rewards can also be very high. The rate of dividends paid to ordinary shareholders is not fixed. It is dependant upon the company’s level of profits and the company’s dividend policy. The ordinary shareholders are effectively the owners of the company.

1.6.2 Preference Shares

Generally these shares carry preferential rights as to the payment of dividends and repayment of capital in the event of liquidation (if set out to be so in the Articles of Association) over the other classes of shares. Preference shareholders receive a fixed rate of dividend which is expressed as a percentage of the nominal value. For example, 4% preference shares of RM1/- each carries a right to receive a gross dividend of 4 sen per share per annum.

The rights attaching to the preference shares are set out in the Memorandum of Articles of the company. The Memorandum or Articles of the company will state the rights of the preference shares with respect to repayment of capital, participation in surplus profits, and priority of repayment of capital and dividends as to other classes of capital.

Preference shareholders do not have any voting rights and therefore leave the management of the company to the ordinary shareholders. However, in the event of non-payment of dividend, i.e., where the preferential dividends remain unpaid or in arrears for a period of time as provided in Articles of Association, preference shareholders may be allowed to vote. In other words these preference shares become voting shares.

Preference shares may be cumulative, non-cumulative, participating, non-participating, redeemable or convertible.

(a) Cumulative preference shares

The holders of these are entitled to receive a fixed dividend per annum. Should insufficient or the absence of profits prevent payment of dividends in any year, the arrears can be carried forward and become payable in the future.

(b) Non-cumulative preference shares

Holders of this class of shares receive a fixed rate of dividend only when the company have sufficient profits to declare a dividend. However, should the company not have sufficient profits to declare a dividend, the dividends for that year are forfeited and cannot be carried forward.

(c) Participating preference shares

In addition to the fixed dividend that they receive, participating preference shareholders are allowed to participate, that is, to receive additional dividends to the extent expressed in the Articles, in any further profits, after all the other classes of shareholders have receive their dividends.

(d) Non-participating preference shares

These shareholders are not allowed to participate in the excess profits after all the other classes of shareholders have been paid their dividends.

(e) Redeemable preference shares

Redeemable preference shares can be repurchased from the shareholders at a future dates as pre-determined at the time of the issue of the redeemable preference shares. This type of shares allows the company to obtain capital of a semi-permanent nature at a fixed rate of dividend.

(f) Convertible preference shares

These preference shareholders are entitled to convert their preference shares to ordinary shares as expressed in the Articles. The date and the rate of conversion will be specified.

1.6.3 Deferred Shares

Deferred share also known as founder’s shares. They are normally issued to the founders/promoters of the company as a token of appreciation of their efforts in forming the company. Their rights to dividends and returns of capital come after rights of the ordinary shareholders have been satisfied.Chapter 12.4 : Specific Forms of Partnerships and Corporation - Limited Partnership

These specific forms of partnership warrant special attention; Limited Partnership, Limited Liability Partnership, S Corporation, and Limited Liability Company.

Limited Partnership, LP

Limited partnership form is needed when capital investment required without responsibility for management and without liability for losses beyond the initial investment. It is governed by the Uniform Limited Partnership Act. (ULPA) and

interested entrepreneurs must follow ULPA guidelines. Read more about it here.

Limited Liability Partnership, LLP

The limited liability partnership is a special form of partnership for professionals in which allows the tax benefits of a partnership while avoiding personal liability for the malpractice of other partners.

S Corporation

The ‘S’ termed from Sub-chapter S of the Internal Revenue Code. It meant for a business can seek to avoid the income tax imposition at the corporate level. In while getting some of the benefits of a corporate form, especially, the limited liability.

The ‘super’ benefit of S Corporation is when the corporation has losses, Subchapter S allows the shareholders to use these losses to offset taxable income.

Limited Liability Company, LLC

LLC is a hybrid form of business enterprise that offers the limited liability of a corporation but the advantages is it enjoy the tax advantages of a partnership. Other advantages;

1. Does not pay taxes on an entity2. Taxes paid by company members3. Members’ liability limited to their amount of investment4. Members are allowed to participate fully in management activities5. No limit exists on the number of LLC shareholder members

From here, I hope you understand why many social network sites and forum base sites in US highly interested to form LLC type of company as the disadvantages are at minimal.Chapter 12.5 : Other Corporation Classifications

The corporation formation, normally, in one country classified it based on various factors. The factors are, by;

1. Objectives2. Location3. Corporate activities4. Ownership arrangement5. Sources of fund

Domestic and Foreign Corporations

The words for ‘domestic’ and ‘foreign’ did not meant for different in citizenship status of the business owner. It meant for different states in one country and the word for ‘foreign’ does not mean for international owner in

the corporation.

Public and Private Corporations

A public corporation formed by the government to meet some governmental and political purposes. The very common examples are for the cities and towns benefits type of forming the corporations.

Private corporations are formed for benefits of public purposes. The word ‘private’ does not mean for the specific private or individual owner and it is wholly governed by the government or local government.

Nonprofits Corporation

Common examples for nonprofit corporations are educational, charitable, religious, and community care corporations. It is a total not-to-profit type of corporation and operating with different policies under state governance although it is owned by private. It can issue shares of stock but not for dividend disbursement.

Professional Corporations

This type of corporation mostly a professional corporation includes the professional practitioners by profession e.g. medicine, accountant, law, etc. It is much better than partnership form of organization because of its tax benefits which provides medical benefits, pension plan, and so forth. Chapter 12.6 : Franchising

Students are advise/advice to regularly visit IFA (International Franchise Association) web site to learn what are the current and latest issues published. This site will helps much in student's examination in providing quality and perfect answers in term of new franchise system development; http://www.franchise.org/aboutifa.aspx

What is franchising?

Franchising is a process of agreement and business conduct between franchisor and franchisee through franchise system.

What is franchise system?

A franchise system is a business operating system through any arrangement in which the owner (franchisor) of a trademark, trade name, or copyright has licensed other business owner (franchisee) to conduct business by selling goods and/or services.

ADVANTAGES OF FRANCHISING

1. A proven track record2. Brand-name appeal3. Financial assistance4. Training and guidance

What type of tracking record has been proven?

A franchisor or the franchisor has already proved the particular business has been successful for at least in the five consecutive years and still enjoying the successfulness.

What kind of appealing brand-name means?

An appealing brand-name is a name of product and/or service which is registered with certified trademark organization/institution and well accepted by consumer community. The brand-name labeled representing high quality product/service compare to the current similar product/service offered by lesser-known outlets.

In what form of financial assistance can be given by franchisor to franchisee?

From the franchisor’s proven track record, brand-name appeal, and training and guidance provisions the financial community/institution easily understand the business operation running in the market and with less questions to ask in giving financial support and approving business loan to the franchisee.

What category of ‘Training and guidance’ provided by franchisor to franchisee?

Franchisor provides a well-know and certified ‘Training and Guidance’ method in the areas of their support system in general management, financial management, product knowledge, customer service management, production management, marketing, advertising, selling procedures, employee skills enhancement, stock, and inventory.

DISADVANTAGES OF FRANCHISING

1. Franchise fees2. The franchisor control exercised3. Franchisor unfulfilled the promises

Franchise fees sometimes are too high or expensive, where normally it is measured to the level of successfulness of the franchisor. The franchise fees

include; license right with upfront money and the each unit gross sales by percentage. It means every unit product/service sold there is earning for franchisor from franchisee business.

A franchisor control franchisee business activities to achieve degree of uniformity. Sometimes control franchisee employee’s activities during business operating hours, especially in accounting area of management e.g. account updating for every an hour, etc.

Regarding franchisor promises, many cases happened in stock supply. Whereby, the so called cheap stock buying price promised earlier breached by franchisor. This is a real burden to franchisee business, whereas, the unit selling price of product/service remains standard. Secondly, after running business for quite a long time the brand-name no longer with drawing power or not having high competitive edge compare to rivals product/service in the open market Chapter 13.0 : Legal Issues Related for Emerging Ventures

During my study in 2000, I found this shortlist was the best source after a month of searching - Source: Roger LeRoy Miller and Frank B. Cross, The Legal Environment Today (St. Paul, MN: West, 1996), pp.205-233

I retype it to share with you, all. This shortlist is very easy to understand.

MAJOR LEGAL CONCEPTS AND ENTREPRENEURIAL VENTURES

I. Inception of an Entrepreneurial Venture

A. Laws governing intellectual property1. Patents2. Copyrights3. Trademarks

B. Forms of business organization1. Sole proprietorship2. Partnership3. Corporation4. Franchise

C. Tax considerations

D. Capital formation

E. Liability questions

II. An Ongoing Venture: Business Development and Transactions

A. Personal law1. Hiring and firing policies2. Equal Employment Opportunity Commission3. Collective bargaining

B. Contract law1. Legal contracts2. Sales contracts3. Leases

III. Growth and Continuity of a Successful entrepreneurial Venture

A. Tax considerations1. Federal, state, local2. Payroll3. Incentives

B. Governmental regulations1. Zoning (property)2. Administrative agencies (regulatory)3. Consumer law

C. Continuity of ownership rights1. Property laws and ownership2. Wills, trusts, estates3. Bankruptcy Chapter 14.0 : Sources of Capital for Entrepreneurs

Start up capital is a very import to entrepreneur in their business venture. It varies depending on what type of business and its size. Basically, entrepreneur needs to know how to differentiate between debt and equity as methods of financing. Examine commercial loans and public stock offerings as source of capital. Learning about private placements gives an opportunity for equity capital. Study the market for venture capital and to review venture capitalists. The importance of studying and evaluate venture capitalists for a selection. Examining the existing ‘angel capital’ as informal risk-capital market.

There are six common sources of fund for entrepreneur to build up the list and they are;

1. Bank loans/Credit institutions- Commercial banks- Corporative banks- Community banks- Invoices/Account receivable undertaking institutions- Third party loan guarantees- Credit cards

2. Family and friends

- Using personal ties- Asset sales- Profit sharing base of offerings

3. Private Equity- Pawn outlets- Offer publishing through world wide web, internet base- Redeemable preferred stock

4. Public Equity- Venture capitalists investment by stake holding- Venture capitalists investment by profit sharing- Commercial-banking links

5. Corporate support- Strategic partnership

6. Entrepreneurship or government financial support programs.Chapter 14.1 : Debt Versus Equity – as method of financing

Entrepreneur must learn what is debt financing, and what is equity financing. Knowledgeable in the differentiation between the both financing, will help much entrepreneur in discerning themselves how to manage their debts and equity. Using debt financing needs a payback of the funds complete with interests. Equity financing is selling part or portion of your ownership in the venture.

DEBT FINANCING

Short-term borrowing is necessary to support initial capital for new venture to initiates. Short-term means the period of one year or less and the repayment method base on monthly with the incurred interest. For example, purchasing small machine or equipment which able to meet the return through efficient production. The machine produces product specifically for the identified potential customers. Common source for this kind of debt financing is commercial bank which provides industrial sector loan facility.

Commercial Banks

Entrepreneur must ensure they are steadfast in providing business plan measures the answers to the following questions, in general;

1. What do you plan to do with the money?2. How much do you need?3. When do you need it?4. How long will you need it?5. How will you repay the loan?

Advantages;

-ownership relinquishment not required-potential greater return on equity-cost of borrowing is low during period of low interest rate

Disadvantages;

-regular monthly repayment required-payback responsibility intensified due to continual cash-flow problem-able to inhibit growth and development if cash-flow failDebt financing also necessary for long-term type of venture and there are many sources as an alternative for entrepreneur selection.

1. Finance companies2. Factoring companies3. Trade credit from suppliers4. Account receivable financing

EQUITY FINANCING

Equity financing does not carry debt value because entrepreneur gives up part of the ownership in return for this funding. It is a form of money invested in the venture with no obligation of payback without interest bearing. By comparison it is much safer than debt financing.

It can be done through IPO (Initial Public Offerings) and this is the main reason why many companies interested to apply for public listing at bourse or stock exchange house. Chapter 14.2 : Public Offering

Public Offerings - (related thread, click here)

Many company interested in going public in raising capital. It is done through the sale of securities on public market and the term going public is commonly refers as going listing in bourse or stock exchange house. The first part to do is issuing IPO (Initial Public Offerings).

To ease your understanding, have you seen IPO published on newspaper with the initial fixed buying price before it go for listing at bourse? They offer their securities to the general public to participate with cash payment.

Some advantages of this approach in raising capital;

1. Size of capital amount: approved by Securities Commission (SC) and SC is under Ministry of Finance in one country. What amount of its size? (See 'Capital Structure' )

2. Liquidity: once one company has been listed at stock exchange, owner(s) of the company can sell their stock. For the company’s working capital, large amount already obtained through IPO.

3. Value: The marketplace (stock exchange) puts the value on the company’s stock, which in turn allows value to be placed on the corporation.

4. Image: general public will put eyes as stronger company because it’s traded publicly in the open share market. Having some ‘float’ levels of public traded company to the eyes of customer, financiers, and customers.

Some disadvantages of this approach in raising capital;

1. Costs: lots of professional fees, advertising cost, printing cost, etc. involved in preparing IPO. The said costs are underwriting the stock, accounting fees, legal fees, prospectus printing and distribution.

2. Disclosure: all of the details about company’s affair have to be made public.

3. Standard requirements: Taking or drains lot of time, energy, money from management in preparing paperwork as required by Security Commission regulations.

4. Shareholder pressure: Management at all time must think about high earnings achievement as the company is publicly known. Having stress in giving high dividend to the shareholder. Chapter 14.3 : The Venture Capital Market

One of the powerful funding sources for new ventures is Venture Capitalist.

Who are the venture capitalists?

Venture capitalists are the groups of well experienced professionals provide a full range of financial services for new and growing ventures.

What are the financial services provided by venture capitalists?

- Capital for start-ups and expansion - Market research and strategy- Management evaluation- Management audit- Management consulting - Help establishing controls; management and accounting- Technical agreement negotiation assistance- Open contact with prospective important business people, suppliers, customers, and networking

Dispelling Venture Capital Myths

1. Venture capital firms want to own control2. Venture capitalists are ROI satisfied3. Venture capitalists are quick to invest4. Venture capitalists are interested in backing new ideas5. Venture capitalists are high technology inventions6. Venture capitalists are taking management is a secondary consideration7. Venture capitalists only need basic summary info before they make an investment Chapter 14.4 : Approaching Venture Capitalists - The DOs and DON'Ts

DO

1. Before soliciting several firms prepare all the basic document materials, completely

2. Determine several potential firms

3. Contact them and keep tele-conversation brief

4. Make sure they understand your prime motive

5. Select the respective firm

If you are uncertain in making decision or don’t even know for which to select or out of your knowledge, contact your company’s Company Secretary for help. Some countries termed Company Secretary as Company Consultant. Which venture capitalists suitable with your type of business to be approached in getting high chance.

6. Forward a business plan and cover letter

7. Stand positive and enthusiastic with about your company, product, and service

8. Negotiate a deal you can live with

DON’T

1. Expect all of your request will be getting good response because this is a preliminary step. There are many ‘fits and gaps’ to be adjusted and rationalized

2. Promoting any type of ‘dodge questions’

3. Providing vague answers to their questions

4. Hide significant problems and if they know later will give you and your company bad reputation to their eyes

5. Expect ‘on the spot’ or immediate decisions

6. Fixate on pricing

7. Embellish facts and projections

8. Bring your lawyer Chapter 14.5 : Factors in Venture Capitalists' Evaluation Process

Before I explain the evaluation process will be done by venture capitalists, it would be much better to know the process stages and I have had my own experienced many times;

Venture Capitalists' Process Stages

Stage 1: Documents submission (Day 1 – by hand)Stage 2: Initial screening (waiting for 1 week)Stage 3: Evaluation of the business plan (waiting for 1 week)Stage 4: Oral presentation (1 day)Stage 5: Final evaluation (waiting for 1 week)

Venture Capitalists' Evaluation Process

1. Industrial economic factor > Saturated/Niche2. Product/Service leading factor > High/Low3. Product/Service rivalry factor > High/Low4. Key persons factor > Related/Non-Related5. Management skills level > High/Low6. Accounting: Current running cash-flow > High/Low7. Market Segmentation > High/Low8. Track record > High/Low9. Knowledge or Technical-know-how > High/Low10. Method of statements in operation/production/service management > High/Low

VENTURE CAPITALISTS’ SCREENING CRITERIA

1. Venture capital firm requirement2. Nature of proposed business3. Economic environment of proposed business4. Proposed business strategy5. Financial on the proposed business6. Proposal characteristics7. Entrepreneur/Team characteristics

Chapter 14.6 : Types of ‘Angel’ Investors

Types of Angel Investors (AI)

There are five (5) basic groups; Corporate, Entrepreneurial, Enthusiast, Mictomanagement, and Professional angels.

Corporate angels – they are senior managers with several backgrounds of experiences such as early retirement, laid off, etc. needed to occupy some important senior management positions in entrepreneur venture to beef up managerial skills level.

Entrepreneurial angels – these groups have another source of incomes and the most prevalent type of investors. They also possessed high wealth value and the best group to approach.

Enthusiast angels – a calculative group of angel investor and use deal method. This group usually comes from 65 or older, independently wealthy and a type of ‘one man decision party’. Their style of investment (normally) based on short-term investment.

Micromanagement angels – a serious group of investor and most of them are from ‘silver spoon’ life group. These groups less approached by small entrepreneurs because micromanagement angels’ interested in portfolio ventures. They are also building up their gigantic portfolio companies.

Professional angels – this group of investor is a professional investor by profession; doctor, lawyer, accountant, etc. Professional investor normally will invest in their particular field of profession interests. For example, wealthy doctor like much to invest in health product/service type of venture.

ADVANTAGES OF ANGEL INVESTOR

1. Angel's Characteristics - Value adding, geographically dispersed, more permissive investor

2. Investment Characteristics - Seek small deals, prefer start up and early stage, invest in all industry sectors, like high-tech firms

3. Added Bonuses - Leveraging effect, give loans guarantees

DISADVANTAGES OF ANGEL INVESTOR

1. Little follow on money

2. Want a say in firm

3. Could turn out to be "devils"

4. No national reputation to leverage

________________________

EXTRA NOTE

Venture Capitalists’ Objectives;

1. Lender – interested in security and payback

2. High ROI concerned

3. Risks avoidanceChapter 15.0 : Strategic Planning for Emerging Ventures - CHAPTER OBJECTIVES

1. What are the important elements for an entrepreneurial venture?

2. Explore the nature of strategic planning

3. What are the key dimensions that influence a firm’s planning process

4. Pointing out the reasons why entrepreneurs do not carry out strategic planning

5. To know some relations between strategic planning and the benefits

6. What are the common approaches entrepreneurs use to implement a strategic plan

7. Reviewing the nature of operational planning for a venture

THE NATURE OF PLANNING IN EMERGING FIRMS

The main objective of business planning is to provide and implement the formal and systematic business plan. The objective of formal business plan is to be in the circle of contemporary business standard formality and the requirements in the region where business is operating. The objective of systematic is the effectiveness of business plan to excel in reality, exercised or practiced by entrepreneurs.

Business plan’s formality and systematic does exhibits many strengths and opportunities in entrepreneur venture. Therefore, the venture growing with right inclination/development steps/stages from the Seed, Start up, Early growth, Established, and Corporate.

STAGE OF DEVELOPMENT IN ENTREPRENEURIAL FIRMSeed-stage

▼Start up

▼Early growth

▼Established

▼Corporate

Formal and systematic business planning must includes these type of elements;

1. Strategic planning2. Operational planning What is Strategic Plan?

Strategic plan formulate the effective management concentrates on opportunities and threats in long- range plans. It defined the venture’s specific, measurable, achievable, reachable, time frame, exciting, and rewarding to the respective future business direction.

Strategic plan draws the clear layout of the specific business’s venture; vision, missions, objectives, competencies, managerial abilities, technical proficiencies, and sources of fund.

Strategic planning includes strategic management which implemented the following strategic processes; Environmental scanning, strategy formulation, strategy implementation, and evaluation and control.

Environment scanning applies to both; external and internal; scanning processes. External environmental scanning accounts the social environment (general forces) and task environment (industry analysis). The internal environmental scanning includes structure (chain of command), culture (beliefs, expectations, values), and resources (assets, skills, competencies, knowledge).

Strategy formulation is a detailing process in the mission (reason for existence), objectives (what results to accomplish by when), strategies (plan to achieve the mission and objectives), and policies (broad guidelines for decision making).

Strategy implementation is the process of conducting programs (activities

needed to accomplish a plan), budgets (cost of the programs), and procedures (sequence of steps needed to do the job)

Evaluation and control is to determine the performance which is a process to monitor performance and take corrective action. It also revises the procedure in strategy implementation.

STRATEGIC MANAGEMENT MODEL

Quote:

Environment Scanning

(External and Internal)

↓Quote:

Strategy formulation

(Mission, Objectives, Strategies, Policies)

↓Quote:

Strategy implementation

(Programs, Budgets, Procedures → Evaluation and Control)

↓Quote:

Evaluation and control(Performance)

................↓................↓...............↓...............↓

Quote:

Environment Scanning - Strategy formulation - Strategy

implementation

Chapter 15.2 : Key Dimensions Influencing a Firm’s Strategic Planning Activities

1. Demand on strategic managers’ time2. Decision making speed3. Problems of internal politics4. Environmental uncertainty5. The entrepreneur’s vision

Demand on strategic managers’ time

This is the time one business needs owner’s manager(s) perspective in building up the most effective evaluations and control. Every each details in the components; environmental scanning, strategy formulation, strategy implementation; must be scrutinized for prompt actions to be taken once discrepancies found below par.

Decision making speed

In the growing development, decision support system must works effectively for decision making process where procedures will determine the speed of decision making. The most effective procedure is by using delegation of decision making power in every critical point of demand.

Problems of internal politics

Internal politics in one firm mean the power-seeking activities done by managers. To resolve this type of problem or difficulty, one firm needs to provide a formal process by which to channel partisan organizational priorities.

Environmental uncertainty

In this part, strategic planning must includes the steps of contingencies or unprecedented plans to react promptly to any environmental incongruities. Drastic changes happened in general economy development and product rivalry are the main major contributing factors.

The entrepreneur’s vision

Entrepreneurial vision needs to be transformed into action in reality. In this area of development, it needs effective measurable and prompt steps;

Step 1 – commitment to an open planning process (avoid having fear loss of

control)

Step 2 – accountability to a corporate conscience (owner’s right direction)

Step 3 – establishment of a pattern of subordinate participation in the development of the strategic plan (create new energy in organizational process) Chapter 15.3 : The Lack of Strategic Planning

There are five basic reasons for the lack of strategic planning in one firm or business administration and management;

1. Mentally perceived a strategic planning is costly

The great fear factor in business owners is having strategic planning an expensive thing to have. The associated costs with the planning to be very high and for small business, this plan is to ignore or avoid.

2. Lack of expertise/skills

Many small business operators are generalists and their business operation still negotiating with high number of rivalries. Make them concentrate on their main business products or services that can meet their break-even as far as they are able to continue their business operation. At this point, they feel they no need to have expansion and their unification making them lack of expertise or skills.

3. Lack of trust and openness

Hesitant to let employees participate in their strategic planning, making business owners think that this plan reveals their business secrecy. Consequently, more benefits go to their employees that them and they have to avoid or ignore preparing strategic plan.

4. Lack of knowledge

Minimal exposure of business planning make business owner unfamiliar with the strategic planning process and the components. They do not what are the benefits to their business development and for future business progress.

5. Time scarcity

Business owner find hard to allocate their time in facing their business day-to-day operating schedules. Their business operation management not yet reached the efficient level.

All of the above points showing that venture having problems with long-range planning. Unfavorable economic conditions and inexperienced managers also be the main contributing factors to poor planning climate to some business owners. Their current business survival is a priority and strategic planning is their secondary at time.

Chapter 15.4 : The Value of Strategic Planning

Does strategy planning pay off?

Many studies shown that it was a strategically paid off.

1. Elaine Mosakwoski, “A Resource Based Perspective on the Dynamic Strategy – Performance Relationship: An Empirical Examination of the Focus and Differentiation Strategies in Entrepreneurial Firms,” Journal of Management 19 (4) (1993):pp.819-839

2. Jeffrey S. Becker and John N. Pearson, “Planning and Financial Performances in Small Mature Firms,” Strategic Management Journal7 (1986):pp.503-522

3*. Christopher Orpen, “The Effects of Long-Range Planning On Small Business Performance: A Further Examination,” Journal of Small Business Management (January 1985):p.22

REPORTED BENEFITS OF LONG-RANGE PLANNING*

High-Performance Firms

Cost savings 52%More efficient resource allocation 66%Improved Competitive position 64%More timely information 42%More accurate forecasts 76%Better employee morale 31%Ability to explore 72%Reduced feelings of uncertainty 42%Faster decision making 49%Fewer cash-flow problems 36%Increased sales 65%

Low-Performance Firms

Cost savings 50%More efficient resource allocation 51%Improved Competitive position 49%More timely information 31%More accurate forecasts 70%Better employee morale 32% Ability to explore 47%Reduced feelings of uncertainty 30%Faster decision making 46%Fewer cash-flow problems 30%Increased sales 50%

STRATEGIC PLANNING LEVELS

1. Structured Strategic Plans (SSP)2. Structured Operation Plan (SOP)3. Intuitive Plan (IP)4. Unstructured Plans (UP)

Structured Strategic Plans (SSP)

Formalized, written long-range plans covering the process of;- determining the major outside interest focused on the organization- expectations of dominant inside interests- information about past, current, and future performance- environmental analysis- determination of strengths and weaknesses of the firm and feedback

Structured Operation Plan (SOP)

Written short-range operational budgets and plans of action for current fiscal period. The typical plan of action would include basic output controls, such as production quotas, cost constraint, and personal requirements.

Intuitive Plan (IP)

These formal plans are developed and implemented based on the intuition and experience of the firm’s owner. They are not written and are stored in the memory of the owner. They are of a short-term duration, no longer than one year in nature. They depend on objectives of the owner and he firm’s present environment.

Unstructured Plans (UP)

No measurable structured planning in the firm. Chapter 15.5 : Entrepreneurial and Strategic Actions

For your study, I think better I share this piece of information and an easy way for you to understand;Source: R. Duane Ireland, Michael A. Hitt, S. Michael Camp, and Donald L. Sexton, “Integrating Entrepreneurship and Strategic Management Actions to Create Firm Wealth,” Academy of Management Executive 15(1) (February 2001):p.51

THE INTEGRATION OF ENTREPRENEURIAL AND STRATEGIC ACTIONS

Quote:

Entrepreneurial▼Strategic actionEntrepreneurialact► Innovations ◄ Strategic actionEntrepreneurialact► Networks ◄ Strategic action

Entrepreneurialact► Internationalization ◄ Strategic actionEntrepreneurialact► Organizational learning ◄ Strategic action

Entrepreneurialact► Top management teams and governance ◄ Strategic action

Entrepreneurialact► Growth ◄ Strategic action

▼Wealth Creation

Chapter 15.6 : Implementing A Strategic Plan

There are many approaches for new venture to take. It depends on a function of the entrepreneur’s personality, and also the environment in which the firm operates. Below is one of the strategic approaches which include the following factors of position, leverage, and opportunities;

Strategic logic, Strategic steps, Strategic question, Source of advantage, Works best in, Duration of advantage, Risk, and Performance goal.

Strategic logicPosition: establish positionLeverage: leverage resourcesOpportunities: pursue opportunities

Strategic stepsPosition: identify an attractive market – locate a defensible position – fortify and defendLeverage: establish a vision – build resources – leverage across marketsOpportunities: jump into the confusion – keep moving – seize opportunities – finish strong

Strategic questionPosition: where should we be?Leverage: where should we be?Opportunities: how should we proceed?

Source of advantagePosition: unique, valuable position with lightly integrated activity systemLeverage: unique, valuable, inimitable resourcesOpportunities: key processes and unique simple rules

Works best inPosition: slowly changing, well-structured marketsLeverage: moderately changing, well-structured marketOpportunities: rapidly changing, ambiguous markets

Duration of advantagePosition: sustained

Leverage: sustainedOpportunities: unpredictable

RiskPosition: it will be too difficult to alter position as conditions changeLeverage: company will be too slow to build new resources as conditions changeOpportunities: managers will be too tentative in executing on promising opportunities

Performance goalPosition: profitabilityLeverage:long-term dominanceOpportunities: growth

Next I will explain about other four formal approaches; Opportunity management, Milestone planning, An entrepreneurial strategy matrix model, and Multistage contingency Chapter 15.7 : Opportunity management, Milestone planning, An entrepreneurial strategy matrix model, and Multistage contingency

Opportunity management

The opportunity management approach is based mostly on environmental analysis and the process involves the following construction of these areas of profile;

1. An evaluation of internal resources2. A forecast of external market conditions3. An evaluation of company strengths and weaknesses4. A formulation of business objectives

Learning by the flowchart diagram;

STRATEGIC PROFILEInternal profiles – External profiles – Key strengths and Weaknesses –

Business objectives▼

OPPORTUNITY PROFILEAction programs – Resource requirements – Expected results

▼(sub-divides)

Program classification – Organization – Budgets – Financial statements – Schedules/expectations

▼

MONITOR AND CONTROL

Milestone planning

The milestone planning approach is based on the use of incremental goal attainment that takes a new venture from start-up through strategy reformulation (See Zenas Block and Ian C. MacMillan,”Milestones for successful Venture Planning.” Harvard Business Review (September/October 1985):pp.184-196

From there what I can summarized that it used the completed each important step before moving on to the next one, and finally all of it linked together into an overall strategic plan. This method is very popular with new ventures that are technical in nature, have multiple phases, or involve large sum of money.

The three major advantages of using milestone planning approach are;

1. The use of logical and practical milestone2. The avoidance of costly mistakes caused by failure to consider key parts of the plan, and3. A methodology for re-planning, based on continuous feedback from the environment

An entrepreneurial strategy matrix model

This method developed by researchers Sonfield and Lussier by performing their research on Boston Casualty Group (BCG) matrix. An entrepreneurial strategy matrix measures risk and innovation.

Innovation is defined as the creation of something new and different. In term of measurement, the newer and more different the proposed product or service is, the higher it would be scored on a measurement scale.

Risk is defined as the probability of major financial loss. The risks focus on these issues: What are the chances of the entrepreneurial venture fail?; and How serious would be the financial resulting loss?

EXPLANATION BY USING GRAPH

To ease your understanding on this matrix, use the common Y–X axis graph; for the vertical Y-axis it scales for “Innovation” and the horizontal X-axis scales for “Risk”. Draw two equally intercepted straight lines (vertical and horizontal, respectively) to make four portions in the graph. From there, you can obviously see these portions; low innovation with low risk, low innovation with high risk, high innovation with low risk, and high innovation with high

risk. Multistage contingency

Multistage contingency approach processed and developed by reviewing the various approaches to entrepreneurship. It reviews three critical parts; the individual, the venture, and the environment; in four levels; Strategic entrepreneurial assessment, New-venture initiation, Entrepreneurial development continuation, and Emerging entrepreneurial issues.

STAGE 1: Strategic Entrepreneurial assessment1- Opportunity2- SWOT Analysis*

LEVEL 2: New-venture initiation* SWOT Analysis1. New-Venture Initiation2. The Business Plan Process

New-Venture Initiation- Creativity- Assessment Evaluation- Feasibility

The Business Plan Process- Definition- Benefits- Business Plan Development

STAGE 3: Entrepreneurial development continuation

All results from the parts in “STAGE 2: New-venture initiation” brought forward into this stage 3. Processing in another four parts in STAGE 3; Entrepreneurial growth and development, Managing paradox and contradiction, Acquisition of a venture, Valuation and succession of entrepreneurial ventures;

1. Entrepreneurial Growth and Development – understanding the entrepreneurial company

2. Managing paradox and contradiction

3. Acquisition of a venture

4. Valuation and Succession of Entrepreneurial Ventures – Methods of Valuation, and Succession Strategy

LEVEL 4: Emerging entrepreneurial issues

All results from STAGE 3 brought forward to this STAGE, the results will be breakdown to the following categories;

1. Corporate Entrepreneurship 2. International: The Global Expansion3. Women Entrepreneurs4. Family Business5. Entrepreneurial Careers Chapter 15.8 : The Nature of Operational Planning e.g. Digital Bhoomi

Operational planning is also known as short-range planning or functional planning. It is a specific practice or process established for strategic planning in the areas of finance, marketing, production, and management, functional process. Many firms commonly perform operational planning rather than strategic planning.

Operational Planning Process

Operational planning process incorporates all of the factors involved in strategic planning. It carries out the objectives set forth in the strategic planning.

For example;

Each department or functional area needs to establish the budget and policies that will guide its operations on day-to-day basis. The daily needed operational planning process to establish sales policies, financial policies, credit policies, service policies, and manufacturing/production policies determine the daily course of business.

Although procedures are similar to policies, they are usually policies that have been standardized as a continuing method. Established policies allow entrepreneurs the freedom to work more on strategy since each specific functional problem does not have to be analyzed. Policies and guidelines to the decision making and ensure the decision is consistent with objectives. Thus, operational planning becomes the on going phase that brings a venture’s strategic plan to action.

Lucid explanation, we just take Digital Bhoomi forum site as another practical example; the forum rules, terms of use, forum index, functional related internal-inter-links; are the components of operational planning process. Chapter 16.0: Managing Entrepreneurial Growth - INTRO

What is managing entrepreneurial growth?

Managing entrepreneurial growth is the most critical business tactic for the future success of business enterprises. It is a great challenge because an entrepreneur needs to develop and understand of management change.

In previous chapters, we have learned/learnt about the business strategic planning and now to further our learning process on how to enhance business management skills and abilities.

A Venture’s typical life Stages and Cycles

New-Venture Development↓

Start-up Activities↓

Venture Growth↓

Business Stabilization↓

Innovation or Decline

This chapter examines the followings;

1. Five stages of a typical venture life cycle; development, start-up, growth, stabilization, and innovation or decline

2. What are the elements involved with an entrepreneurial firm?

3. What are the ways entrepreneurs build adaptive firms?

4. What is the transition that occurs in the movement from an entrepreneurial style to a managerial approach?

5. What is the importance of the self-management concept in managing the growth stage?

6. What are the key factors that play a major rule during the growth stage?

7. To determine the complex management of paradox and contradiction

8. To discern the very useful steps for breaking through the growth wall Chapter 16.1: Venture Development Stages

In the true exam we have to describe every stage in words of explanation to prove that we really understood what it is all about. Look very simple because it is a common heard terms but when the time for us to compose the description, it is not an easy thing like what we looked.

This is the different between study in Bachelor’s Degree and Master’s Degree. In Bachelor’s Degree student go by the book but in Master’s Degree student go out of the book with their own words in mastering their understanding the definition and the meaning to the specific description.

Venture Development Stages

Alfred Chandler has presented a firm’s evolution in the following stages:

1. Initial expansion and accumulation of resources

2. Rationalization of the use of resources

3. Expansion into new markets to assure the continued use of resources

4. Development of new structures to ensure continuing mobilization of resources

- Alfred Chandler, Strategy and Structure (Cambridge, MA: MIT Press, 1962)

New Venture Development

This is the first stage of business venture, new venture development, the initial phase of entrepreneurial as foundation where the activities associated with the beginning of business formulation. To determine what are the vision, missions, objectives, competency, managerial ability, technical proficiency, and sources of fund.

Start-Up activities

After the new venture development stage, this is the stage to go for start-up activities in building up and interconnect, efficiently; teamwork, opportunity (business plan), and resources. It is all about to launch the venture with the typified strategic and operational planning steps. An effective marketing plan is much needed on running the show as the key of success in start-up stage.

Growth

Growth stages can be divided into two divisions because of major changes during this stage; growing up and growing out. Growing up means the business growth able to cope with the growth venture and growing out having two variable results; less demand or less supply.

At this stage, problem or solution whether in the forms of unification or expansion needs prompt action to be taken by entrepreneur. Normally, the rapid change is unable to cope up by creative entrepreneur. A total different move in change during growth stage compare to start-up stage, where sometimes incongruities far differences in results happened in reality compare to paperwork which is done during start-up. Growth stage is a transition point from entrepreneurial one-person leadership to managerial team-orientated leadership.

Business Stabilization

A number of developments commonly occur during business stabilization where it is a result of both market conditions and the entrepreneur’s effort. The said development in which commonly occur are increased competition, consumer reaction to entrepreneur’s product(s) or service(s). it drives entrepreneur either enjoying profitability or prone to losses. Innovation factor much help entrepreneur during growth stage.

Innovation or Decline

An easy conclusion that can be made is any firm fail to innovate will die. This is the time where entrepreneur needs productive teamwork with highly potential networks to make their venture profitable because it is able to ‘jump start’ both points; opportunity and resources; in identifying potential customers. Chapter 16.2 : Building The Adaptive Firm

What is an adaptive firm?

An adaptive firm increases opportunity for its employees, initiates change, and instills a desire to be innovative. Entrepreneurs can build an adaptive firm in several ways – Donald F. Kuratko, Jeffrey S. Hornsby, and Laura M. Corso, “Building an Adaptive Firm,” Small Business Forum (spring 1996):pp.41-48.

What are the ways to build up an adaptive firm?

The following are not flexible rules, but they do enhance a venture’s chance of remaining adaptive and innovative both through and beyond the growth stage – Steven and Jarillo-Mossi, “Preserving Entrepreneurship,” pp.13-16

1. Share the Entrepreneur’s Vision2. Increase the Perception of Opportunity3. Institutionalize Change as the Venture’s Goal4. Instill the Desire to Be Innovative

Share the Entrepreneur’s Vision

Company’s direction should be made clear throughout the organization in

order employees to understand. These kind of sharing allow the entrepreneur’s vision to be shared and permeated to all parties involved. It can be done directly through meetings, conversations, or seminars and also by symbolic events such as gatherings, family days, recognition events, and displays.

Increase the Perception of Opportunity

Increase the perception of opportunity to employees can be done through careful job design. It is able to define the objectives for which in enhancing employee’s level of responsibility. This allows employees in different functional areas to work collaboratively.

Institutionalize Change as the Venture’s Goal

This entails a preference for innovation and at the same time the change rather than preservation of the status quo. If opportunity is to be perceived the environment of the enterprise must not only encourage it but also establish it as a goal. Within this context, a desire for opportunity can exist if resources are made available and departmental barriers are reduced.

Instill the Desire to Be Innovative

The desire of personnel to pursue opportunity must be carefully nurtured. Words alone unable or will not create the innovative climate. The specific following steps should be taken;

Step 1: Provide reward systemStep 2: Minimize an environment that allow or prone or propensity for failureStep 3: Flexible operationsStep 4: The development of venture teams and team performance goals need to be established Chapter 16.3 : The Transition From An Entrepreneurial Style to a Managerial Approach

What is the key transition occurs during the growth stage of a venture?

The key transition occurs is managerial style during the growth of a venture. It runs by the functionalities of organization, and management team.

In order to bring necessary changes to cope with the growth of venture, entrepreneur will optimize every change whether it is a type of unification or expansion. Other steps to consider are;

1. Modification or bowdlerization to enhance management skills

2. Institutionalization the all established decision making points in the

organization

3. Productive management person to be promoted or replacement needed

4. Rationalization between upper and bottom levels of management staffs by developing middle-level management.

5. Enhance all control points at operation and management in the organization

6. May needs re-structuring in organization by adding professional staffs or reshuffling process take place

7. Balancing the culture level between entrepreneur’s view and administrative view

8. New idea needed to level up integration between teamwork, resources, and plan

9. Does training needs to be introduced? If so, what category of training?

10. How to established high centralized decision making system? Chapter 16.4 : Balancing the Focus (Entrepreneur and Manager)

What is balancing focus between entrepreneur and manager(s)?

Balancing focus is a way of having profitable integration of innovation and creativity between business owner and manager(s) by translating the spirit of innovation and creativity.

To make this explanation easier to be understood, better learning by examples;

The entrepreneur’s point of view

1, Where is opportunity? 2. How do I capitalize on it?3. What resources do I need?4. How do I gain control over them?5. What structure is best?

The manager’s (intrapreneur) point of view

1. What resources do I control?2. What structure determines our organization’s relationship to its market?3. How can I minimize the impact of others on my ability to perform?4. What opportunity is appropriate?

SUMMARY

From the above questions from both parties that roused, very obvious the words used are opportunity, capitalize, resources, control, structure, organization’s relationship, market, minimize, impact, ability, perform, and appropriate. It is clear there those words are the elements of innovative and creative and to translate the spirits of each, entrepreneur needs to integrate it all in centralization system.

VERY GOOD EXAMPLE IS DIGITAL BHOOMI’S DISCUSSION OPERATIONAL SYSTEM

The good model of centralization system is Digital Bhoomi, where you can imagine Digital Bhoomi’s Teams as business owner (entrepreneur) and members as managers (intrapreneurs), well integrated in ‘Feedback/Suggestion/Comments’ and 'Announcement’ forum indexes.

Through ‘Feedback/Suggestion/Comments’, it works in the both ways, member to members and member(s) to owner. A member can upload a suggestion and the discussion operating system allows other members to post their replies whether agree with reasons, or disagree with reasons, or adding points of extension. Owner can make final decision by filtering the points in the members’ discussions as owner’s decision making support system. From this point, owner can directly reply with answer(s) in the same thread or make a separate announcement by using 'Announcement’ forum index.

Not like other forum base sites, in other forum site any member who want to forward idea(s) has to use ‘contact us’ link, this method is not consensus building type of translating innovation and creativity. Chapter 16.6 : Understanding the Growth Stage

Understanding the growth stage means understanding coordination and flexibility. Any metamorphosis process there must be keys of change or transformation.

What are the key factors during growth stage?

CCTR – Change, Control, Responsibility, and Tolerance of failure

Change – the continuum type of change in planning, operation, and implementation. It does results of effects in term of resources, people and structure.

Control – problems created by growth development are command and control. Many questions start ‘kick-in’;

1. Does control system imply trust?2. Does the resource allocation system imply trust?3. Is it easier to ask permission than to ask forgiveness?

These questions reveal a great deal about the control of venture. If the answer is ‘yes’ means the business is in good blend of control and participation. What conclusion should be taken if the answer is ‘no’? Each negative response should be closely examined.

Responsibility

It regards the distinction of authority and responsibility, as they become more apparent. Authority can always be delegated, but it is most important to create a sense of responsibility. This action establishes flexibility, innovation, and as supportive environment. People tend to look beyond the job alone if a sense of responsibility is developed, so the growth stage is better served by the innovative activity and shared responsibility of all of firm’s members.

Tolerance of failure

What are the main sources that need tolerance of failure?

1. Moral failure – violation of internal trust

2. Personal failure – brought about by a lack of skill or application

3. Uncontrollable failure – caused by external factors in which difficult to prepare for or deal with. It effects the limitations in resource, strategic direction, and market changes are examples of forces outside the control of employees. Chapter 16.6 : Managing Paradox and Contradiction

What is business paradox?

Business paradox is any business statement or proposition that seems self-contradictory to owner or absurd but in reality expresses a possible truth during a business experiences surges in growth. – Michael Dadona, “Digital Bhoomi Forum,”MBA–Module–Entrepreneurship Management,” Education, Class Note, post no. 81

During this stage there are many well-structured contradictory factors contributing the multiple challenges. It is able to introduce perplex or flummox in entrepreneur’s mind in which propensity towards making entrepreneur indecisive.

It took me three days searching for which example that published lucid explanations to share with you on here. Skimming down through various related academic document materials from the year 2009 to 1980, and fortunately, I found this one;Source: Charles J. Fombrun and Steffan Walley, “Structuring Small Firms for Rapid Growth,” Journal of Business Venturing (March 1989):p.109

CONFLICTING DESIGNS OF STRUCTURAL FACTORS

Cultural ElementsQuote:

Flexible DesignAutonomous – Risk Taking - Entrepreneurial

Bureaucratic DesignFormalized – Risk Averse - Bureaucratic

Staffing and DevelopmentQuote:

Flexible DesignTechnical skills – Specialists – External hiring

Bureaucratic DesignAdministrative skills – Generalists – Internal hiring

Appraisal and RewardsQuote:

Flexible DesignParticipative – Subjective – Equity based

Bureaucratic Design

Formalized – Objective – Incentive basedChapter 16.8 : From Entrepreneur to Manager (Intrapreneur)Points Source: Stephen J. Simudra, “Instant MBA”,” Small Business Computing (February1997):pp.60-63

For many entrepreneurs, one of the most difficult tasks is to make the successful transition from a creative, task-juggling entrepreneur to a business-skill-applying manager (Intrapreneur).

A dozen top small-business experts were asked their advice on making this transition successfully. Their answers were consolidated into the following list of key management strategies to help entrepreneurs grow their companies and boost their bottom line.

1. Don’t be the company handyperson

On start-up level of growth, yes, entrepreneur must be able to do every job in the company. But as business grow entrepreneur must hire ‘intrapreneur’ type of managers.

2. Hire to your shortcoming

Hire ‘intrapreneur’ type of managers in obtaining leading different ideas, it will lead to more innovative ideas.

3. But don’t overhire

Today’s labor market offers numerous staffing alternatives, such as temps, part-timers, and contract workers, that enable small businesses to keep taxes and insurance costs low. Outsource to them some parts of monitor-less jobs and during this period of time entrepreneur can evaluate which person is an intrapreneur type of person to bring in into the company as-need basis.

4. Call out the “SWOT” team

“SWOT” meeting should be held at least once a year to keep an ongoing business on track. For ‘wealthy’ entrepreneurs, they can choose for professional venture capitalists to carry out this duty.

5. Give employees a stake in the company’s success

In some countries, this method called as ESOS – Employee Stake Offering System. This method is to keep employees motivated and loyal.

6. Hold down expenses

Cost-cutting opportunities are everywhere; rental(s), interest bearing(s), etc.

in term of looking alternatives to be implemented and the objectives are reducing fixed costs, variable costs, and mixed costs (if any). One manager take control each critical point of it and this will ensure the low value in break-even point.

7. Go global

In this area of development, there are two types of going global; online internet base and conventional offline base. Much better to get it done by fully utilized online internet base in searching for global offline network and the process of performing networking. Handling and monitoring tasks can be undertake by managers.

8. Scratch the customer’s itch

This type of strategy needs customers’ feedback to meet with company’s customer service availability and capability. It helps much in increasing sales figure.

9. Adapt to change

I called this method as ‘capricious’ where an entrepreneur able to direct their managers to cope up with any type of external and internal change in which sometimes happened drastically and need prompt actions to be taken.

10. Seek customer advice

There are two types or categories of customers in this explanation to count on; loyal and potential. Informative method to seek for advises. How to do it? Collect their ‘says’ by publishing one contest in major newspaper and also use web site to promote (managers control), on their submission they have to provide ‘Prove of product/service purchasing’. Entrepreneur can enjoy both; sales and advises (ideas). Reward with little cash prizes for winners.

11. Sniff out the silver linings

Need some creative ideas to create publicity to the general public. Intrapreneur managers can help this thing active and effective when they feel proud being as part of the entrepreneur business. Chapter 16.9 : Confronting and Handling the Growth Wall

The identified fundamental changes that confront rapid-growth firms are instant increases, a sense of infallibility, internal turmoil, an extraordinary resource needs. These changes can build growth wall.

To confront the growth wall, entrepreneur has to be prepared with these steps;

Step 1 – envision and anticipate the firm as a larger entityStep 2 – the team needed for tomorrow is hired and developed todayStep 3 – the original core vision of the firm is constantly and zealously reinforced; understand the core issues in entrepreneurship world;

> What is entrepreneurship?> What type of a person is an entrepreneur?> The context of modern entrepreneurship or the government role in fostering entrepreneurship.> Creating intrapreneurship> Managing the process of creativity and innovation> The essentials of business planning> Managing growth

Step 4 – new “big company” processes are introduce gradually Step 5 – hierarchy is minimizedStep 6 – ‘ESOS’ offered to employees; Employee Share Offer Scheme

Handling the environmental change or trends by following these steps;

Step 1 – Get the factsDevelop competitors profiles, market studies, and technological analysis

Step 2 – Create a growth task forceDevelop cross-functional team to produce key ideas for growth

Step 3 – Plan for growthDevelop comprehensive plan for the recommended key ideas on the critical component

Step 4 – Staff for growthKey executives need to be charged with the constant challenge of responsibility to growth

Step 5 – Maintain a growth cultureCreate corporate culture and rewards a growth-orientated attitude

Step 6 – Use an advisory boardEstablish an outside board of advisors to become an integral part of the venture’s growth

VERY IMPORTANT IN EXAM

Chapter 16.10 : Growth and Decision Making - Responsibility ChartingSource: Thomas N. Gilmore and Robert K. Kazanjian, “Clarifying Decision Making in High Growth Ventures: The use of Responsibility Charting,” Journal of Business Venturing (January 1989):p.71.

The decision-making process is a critical issue in the growth stage of emerging ventures. The focus and style of decision making are distinctive from the earlier or later stages that a venture goes through.

DECISION-MAKING CHARACTERISTICS AND GROWTH STAGESQuote:

Primary Focus

Early stage(s) > Growth stage >> Later stage(s)

1. product business > volume production >> cost control

2. definition acquisition of resources > market share >> profitability

3. development of market position > viability >> future growth opportunityQuote:

Decision-Making Characteristics

Early stage(s) > Growth stage >> Later stage(s)

1. informal > transitional >> formal

2. centralized > transitional >> decentralized

3. nonspecialized > transitional >> specialized

4. short time horizon > transitional >> long and short time horizonLEARNING THROUGH OBSERVATION

From the above table, you must observe the decision-making characteristics; centralized > transitional >> decentralized. Why it changed to “decentralized”? It is related to ‘informal’ changed to ‘formal’.

RESPONSIBILITY CHARTING

Another method suggested to entrepreneurs for consideration when handling decision during growth is responsibility charting.

Responsibility charting enables better discussions of power and authority because it allows a rich range of potential solutions, rather than the win-lose dynamics that result from discussing these issues in terms of boxes and lines of a new structure.

In growth-stage ventures, team building often fails because of the influx of new executives. Once responsibility charting has been used to clarify major decisions, the results are a powerful way to orient new executives who step into key roles. Unlike a job description that only communicates one's duties, the chart shows how the role fits into many critical processes.

Whether it's networking or responsibility charting, entrepreneurs need to develop methods for handling the increasing complexities of decision making in the growth stage. The key to any system may be the ability of the ability of the entrepreneur to delegate.Quote:

STEPS OF RESPONSIBILITY CHARTING

1. Establishment of initial parameters:

> Decision rules> Common language> Creating the matrix of key decisions and roles

2. Individual balloting and tabulation of patterns

3. Discussion, clarification, negotiation

4. Agreement on allocation of responsibility

5. Monitoring and negotiation as neededChapter 16.11 : Effective Delegation Quote:

In start-up companies, the visions are usually the entrepreneurs ¹. – they have the clear ideas about product or service they plan to offer. Moreover, they often have to be in all places at all times, taking care of every detail. Unfortunately, this 100 percent hands-on management does not permit an entrepreneur’s staff to mature. Why think, if the boss has all answers? Inadvertently, an entrepreneur usurps employees’ responsibilities. Worse, people of then perform well because they know the owner is right there ² ¹ Shaker A. Zahra, “The Changing Rules of Global Competitiveness in the 21st. Century,” Academy of Management Executive 13, (1) (1999):pp.36-42²Timothy W. Firnstahl, “Letting Go,” Havard Business Review (September/October 1986):p.15.

What is effective delegation?

Effective delegation is a key component of success. This process entails three steps; assigning specific duties, granting authority to carry out their duties, and creating the obligation of responsibility for necessary action.

Why is delegation so essential to growth-oriented ventures?

To continue growth and innovation, the entrepreneur needs to free up their time and to rely on others in the enterprise to carry on the day-to-day activities – Wayne C. Shannon, “Empowerment: The Catchword of 90’s,” Quality Progress (July 1991):pp.62-63

In addition to the three steps just outlined, two other delegation-related responsibilities arise–Ibid, pp.15-16.

The first is to hire the best employees – the basis of any effective entrepreneurial team. As a small venture grows into a larger enterprise, hiring becomes a major area of consideration. The organization needs to determine the proper skills so it can hire those who have the necessary skills (or abilities to learn these skills) to fill newly created jobs.

The second responsibility is to use delegation to free up time for thinking effectively. The entrepreneur needs to continually consider the basic philosophy and direction of the firm. Firnstahl put it this way;Quote:

Thinking is not reading, meeting, routine reporting, listening, observing, or working, in a sense, thinking is dreaming the organization’s future. It’s the ability to see tomorrow and construct the company’s ideal state. It’s the ability to get excited about the possibilities in the future.In addition to the ideas presented thus far, other suggestions for thinking about the venture’s future follow;

1. View thinking as strategy

2. Schedule large blocks of uninterrupted time

3. Stay focused on relevant topics

4. Record, sort, and save thoughts Chapter 16.12.1 : Achieving Entrepreneurial Leadership in the New Millennium – STRATEGIC LEADERS

Entrepreneurial leadership can be defined as the entrepreneur’s ability to anticipate, envision, think strategically, and work with others to initiate changes that will create a viable future for the organization – Michael A. Hitt, R.

Duane Ireland, and Robert E. Hoskisson, Strategic Management: Competitiveness and Globalization, 4th. ed. (Mason, Ohio: South-Western/Thomas Learning: 2001)

STRATEGIC, VISIONARY, and MANAGERIAL LEADERSHIPSource: W. Glenn Rowe, “Creating Wealth in Organizations: The Role of Strategic Leadership,” Academy of Management Executive 15(1) (2001):p.82

Strategic Leaders

√ synergistic combination of managerial and visionary leadership

√ emphasis on ethical behavior and value-based decisions

√ oversee operating (day-to-day) and strategic (long-term) responsibilities

√ formulate and implement strategies for immediate impact and preservation of long-term goals to enhance organizational to enhance, growth, and long-term viability

√ have strong, positive expectations of the performance they expect from their superiors, peers, subordinates, and themselves

√ use strategic controls and financial controls, with emphasis on strategic controls

√ use and interchange, tacit and explicit knowledge on individual and organizational levels

√ use linear and nonlinear thinking patterns

√ believe in strategic choice, that is, their choices make a difference in their organizations and environment Chapter 16.12.2 : Achieving Entrepreneurial Leadership in the New Millennium – VISIONARY LEADERS


Visionary Leaders

√ are proactive, shape ideas, change the way people think about what is desirable, possible, and necessary

√ work to develop choices, fresh approaches, to long standing problem; work from high-risk positions

√ are concerned with ideas; relate to people in intuitive and emphatic ways

√ feel separate from the environment; work in, but do not belong to

feel separate from the organizations; sense who they are does not depend on work

√ influence attitudes and opinions of others within the organization

√ concerned with insuring future of organization, especially through development and management of people

√ more embedded in complexity, ambiguity, and information overload; engage in multifunctional, integrative tasks

√ know less than their functional area experts

√ more likely to make decisions based on values

√ more willing to invest in innovation, human capital, and creating and maintaining and effective culture to ensure long-term viability

√ focus on tacit knowledge and develop strategies as communal forms of tacit knowledge that promote enactment of a vision

√ utilize nonlinear thinking

√ believe in strategic choice, that is, their choices make a difference in their organizations and environment Chapter 16.12.3 : Achieving Entrepreneurial Leadership in the New Millennium – MANAGERIAL LEADERS


Managerial Leaders

√ are reactive, adopt passive attitudes towards goals; goals arise out of necessities, not desires and dreams; goals based on past

√ view work as an enabling process involving some combination of ideas and people interacting to establish strategies

√ relate to people according to their roles in the decision-making process

√ see themselves as conservators and regulators of existing order; sense of who they are depends on their role in organization

√ influence actions and decisions of those with whom they work

√ involved in situations and contexts characteristic of day-to-day activities

√ concerned with, and more comfortable in, functional areas of responsibilities

√ expert in their functional area

√ less likely to make value-based decisions

√ engage in, and support, short-term, least-cost behavior to enhance financial performance figures

√ focus on managing the exchange and combination of explicit knowledge and ensuring compliance to standard operating procedures

√ utilize their thinking

√ believe in determinism, that is, the choices they make are determined by their internal and external environments Chapter 16.13 : Components of Entrepreneurial Leadership

COMPONENTS OF ENTREPRENEURIAL LEADERSHIP

1. Determining the firm’s purpose or vision

2. Exploiting and maintaining the core competencies

3. Developing human capital

4. Sustaining an effective organizational culture

5. Emphasizing ethical practices

6. Establishing balanced organizational control

Source: R. Duane Ireland and Michael A. Hitt, “Achieving and Maintaining Competitiveness in the 21st. Century: The Role of Strategic Leadership, “Academy of Management Executive 13(1) (1999):pp.43-57

During my learning period, to ease my memory in this important part, I relate the respective component with my own abbreviations; D.C.H.O.E.B.

1. D - Determinism

2. C - Competency

3. H – Human Capitalism

4. O - Organizational

5. E - Ethical

6. B - Balance controlChapter 17.1 : The International Environment

An entrepreneur who produces their ideas through a ‘Global Thinking’ manner will develop steps to venture in international business level. There are many international entrepreneurs successfully done their business in foreign countries. How to measure successfulness? Current assets value is much greater than current liabilities value.

Important knowledge about;

1. The World Trade Organization (WTO)2. The North American Free Trade Agreement (NAFTA)3. The Europian Union (EU)4. ASIA and the Pacific Countries5. International Constitutional Law Organizations__________________________________________________ ____________

The World Trade Organization (WTO)

Learning what is WTO must take time to know about GATT (General Agreement on Traffics and Trade).

WTO formal web site URL; http://www.wto.org/

GATT (General Agreement on Traffics and Trade); click here.

WTO was established on; 1 January, 1995; it is an umbrella organization governing the international trading system. For students it provides special web page and links to enhance their knowledge what is all about WTO;

1. What is the WTO?2. Distance learning3. Information by country4. Trade statistics5. Research 6. Forum7. Annual publications8. Internships 9. Introductory videos

SPECIAL : India and WTOGovernment of India - Ministry of Commerce and Industry

The North American Free Trade Agreement (NAFTA)

NAFTA is an international agreement among Canada, Mexico, and the United States whereby eventually no trade barriers will exist among the three nations.

The NAFTA, after being founded in 1988 and in force since 1 Jan 1989 between the US and Canada, also comprises Mexico since 1993. It provides for abolishment of customs duties until 1 Jan 1998. The extended treaty from Aug 1992 not only includes Mexico, but also tries to implement a common market for goods and services within 15 years. The NAFTA does not intend to implement a customs union or common international trade policies. US President George Bush first established the plan to extend NAFTA all over America from Alaska to Fireland which might be realized by 2005 (cf. FTAA). Since July 1995, Chile conducts talks about membership. But the Mexican economic crisis made southern extensions of NAFTA unlikely, pushing Chile into Mercosur.

NAFTA formal web site URL; click here.

The Europian Union (EU)

EU was founded in 1957 as the European Economic Community and in 1992 became a full-fledged economic union.

The objectives of the EU include;

1. The elimination of custom duties among all member states,2. The free flow of goods and services among all members,3. The creation of common trade policies toward all countries outside the EU,4. The free movement of capital and personnel within the bloc,5. The encouragement of economic development through the bloc, and6. Monetary and fiscal coordination among all members.

EU formal web site URL; click here.Member State of the European Union (27) ; click here.

ASIA and the PACIFIC COUNTRIES

The ITUC-Asia Pacific was founded on 4th September 2007 in Bangalooru, India representing 16.8 million members of 48 national trade union centers from 29 countries in Asia and the Pacific. The ITUC-AP, as organic part of the International Trade Union Confederation, strives for social justice giving special attention to problems affecting the workers in the region to further the aims and objectives of the ITUC. International Trade Union Confederation for Asia and the Pacific formal web site URL; http://www.icftu-apro.org/

International Constitutional Law OrganizationsChapter 17.2.0 : Methods of Going International

There are five ways for entrepreneur can actively participate in the international market;

1. Importing2. Exporting3. Joint venture4. Direct foreign investment5. Licensing

Before going to international business venture, let us learn about the risk of entering global market;

Quote:

The Risk of Entering Global MarketBlue – minimumGreen – mediumRed – high/maximum

Details and level of risk

1. Export/Import trade

2. Licensing by a foreign firm to produce its products

3. Financial investment in a foreign firm

4. Licensing of a foreign firm to produce your products

5. Partnership with an existing foreign firm

6. Direct investment in a foreign branch with domestic management

7. Direct investment in a foreign branch with foreign management Chapter 17.2.1 : Methods of Going International – Importing

Importing is a business activity involves buying foreign-country’s-goods and shipping it to the domestic country or other foreign country.

The advantage is goods required can reach the need of demand and supply in one domestic country. The disadvantage is it is able to reduce the value in GDP calculation.

WHAT IS GDP and HOW DOES IMPORT EFFECT GDP VALUE?

GDP is an abbreviation to Gross Domestic Product which is its value includes the values of these various factors/sources;

1. Private consumption2. Gross investment3. Government spending4. Exports, and5. Imports

To easily remember the sequence of those elements, it would be much better to abbreviate it into; P.G.G.E.I.

The formula for GDP calculation is;

GDP = 1 + 2 + 3 + (4 - 5)

Before execute any import activity, the two bodies should be the contact points to search, determine, certify, and verify the product whether it is permitted or otherwise in one country. If in India, the governance agency is Government of India - Ministry of Commerce and Industry and the world organization is India and WTO

How does an entrepreneur become aware of import opportunities?

1. Attend trade shows and fairs where firms gather to display their products and services

2. Monitor trade publications

3. Bank’s international trade financing

4. Bank’s international trade guarantee

5. International association/organizations in domestic country

6. Domestic’s international chamber of commerce Chapter 17.2.2 : Methods of Going International – Exporting

Exporting is done in increasing market potential to foreign country(ies) on domestic-produced-goods. It involves many governance modalities to be fulfilled as a standard requirements, shipping arrangement must be efficiently done. Normally it involves tied schedules as stipulated in the supply contract agreement legitimately done earlier between domestic supplies and foreign buyer (importer).

Exports value really helps one country’s GDP value to increase. How does it help in growing GDP value? Refer Chapter 17.2.1. The are many curve concepts in exporting goods to foreign country or countries. An exporter must be well organized in business relationship and the networking with these third party export managing and handling firms;

1. Export management company2. Freight forwarder3. Other sales corporation in foreign company

Export Management Company

Many entrepreneurs do not obtained the export business opportunity on their own and depending on other export management company. So an entrepreneur needs to investigate the track record done by the particular export management company. They are the authorized party to act on behalf of goods owner (entrepreneur). This method much costly compare to freight forwarding method as it handles all the export-related activities.

Freight Forwarder

Another method of exporting that entrepreneurs commonly use is to employ the services of a freight forwarder. A freight forwarder is an independent business that handles export shipments in return for compensation. Some of the services a freight forwarder can provide follow;

1. Quoting inland, ocean, air shipping costs2. Arranging inland shipping and reserving necessary space abroad an ocean vessel3. Advising on the requirements of the international packing4. Preparing the necessary export document 5. Seeing to it that the goods reach the port and tracking lost shipment

This method much less cost compare to ‘Export Management Company’ as freight forwarding company only or simply arranges the product shipment.

Other sales corporation in foreign company

To personally ensure what are the latest requirements needed to be fulfilled by an exporter in other foreign countries, much better contact the relevant

authorities such as custom department and commerce and industry department, or ministry of international trade and industry. If in India; Government of India - Ministry of Commerce and Industry ◊ India and WTO Chapter 17.2.3 : Methods of Going International – Joint Venture

The international joint venture is needed when two or more parties searching for the same benefits in business venture by combining the teamwork, business plan or opportunity, and resources. This method also involves technology transfer by mutual agreement between the ventured parties.

For example, to construct gigantic underground traffic tunnel in minimizing or reduce the traffic congested level in the city in one country. The domestic construction company fully equipped with teamwork and resources but lack of technology, expertise, and equipment. So in need the foreign business partners to joint venture that project, which can provides the needs and requirement upon constructing and complete the project.

True on ground example (accomplished in 2009);Chapter 17.2.4 : Methods of Going International – Direct Foreign Investment A foreign investment is a domestically controlled by direct foreign investment (FDI) policies in one country. Different country applies different policies, especially, on the ownership control and varies to the related industries. For example;

Foreign Direct Investment (FDI) in India – click hereForeign Direct Investment (FDI) in Chna – click hereForeign Direct Investment (FDI) in USA – click hereForeign Direct Investment (FDI) in UK – click here

The entrepreneur may own 100 percent on stock and not have control over the company. In general, the government my dictate who a firm may hire including the pricing structure the firm must use, and how will be the earnings be distributed. In this case, the company become becomes a subsidiary of the acquiring company.

There are many reasons why an entrepreneur chose FDI method for their international investment;

1. Trade restrictions: some countries have prohibitions or restrictive barriers on imports of certain products making the exporting activity costly.

2. Granted tax incentives: offered by the foreign country very attractively promoted during international trade mission done by one country’s leader.

3. Second home status: some countries offered second home status to participants in their FDI program.

Attractive FDI program really an exciting venture for small firms making

efforts to increase their sales and their competitive positions in the marketplace. This position can be achieved because domestic government offers specific marketplaces to be penetrated with a guaranteed covenant.

However, it is sometimes not a practical for a firm to participate in FDI in foreign country unless the firm has a unique or proprietary product or any manufacturing process, it may want to consider the Concept of Licensing. Chapter 17.2.5 : Methods of Going International - Licensing

Licensing is a method of cooperating business venture with third party (licensee) by assigning owner’s proprietary rights (licenser) over certain product or service, upon third party execution. Licenser’s proprietary rights could be the intellectual property, or pattern, or trademark, or technology, or system; and owner’s earning sources from legitimate contractual agreement; royalty and or profit sharing, or others.

A licenser does not needs to concern on the licensee’s daily business operation, production, or management requirement; the licensee will handle all of this. There are three basic types of programs are available;

1. Patents: Entrepreneur who has decided to use the pattern approach should then file for patents in the countries where business will be executed. Although this step can be expensive, it is imperative because this action able to give a stronger bargaining position in the marketplace.

2. Trademarks: In international marketplace, trademark for licensee business is very important. On one certain patent, licensee should possessed many trademarks from licenser to market the manufactured product(s) in various foreign countries for recognition.

For example, sometimes licensees will want the patent rights but prefer to use their own trademarks, particularly when the foreign firm is well established.

3. Technical Know-How: Dependent on security of secrecy agreement needed making this type of licensing be the hardest method to enforce. The use of this technical know-how licensing is strictly governed by local government and licenser may protect the technical capabilities for only three to five years before it is free to use this know-how without paying loyalties.

These steps should be followed to arrange for licensing;

1. Obtain an enforceable and secured patent, trademark, or know-how position

2. Allocate adequate resources for research, legal, and travel expenses

3. Research interested foreign markets to be sure the product can be produced and marketed there

4. Start with countries having a minimum of governmental regulation

5. Make a tentative list of countries in order of preference

6. Prepare attractive product catalogs and promotional brochures in different foreign languages

7. Build a list of potential foreign licenses through consultation with trade associations or embassies in foreign countries

8. Contact the high potential licensees and arrange visits for exploratory meetings

9. Develop criteria for selecting firms to become licensees. Some factors to evaluate are marketing, production, customer base, channel strength, service support, reputation, and financial capabilities

ADVANTAGES OF LICENSING

1. Attractive way to enter international business arena

2. Minimal capital outlay

3. Can generate savings in tariff and transportation cost

4. More realistic means of expansion than exporting

5. Access to the market easier compare with equity investment

6. Foreign government normally easy to give the approval because the technology is being brought into the country

7. Potential exists for the licensees to become partners and contributors in improving the ‘learning curve’ of the technology

DISADVANTAGES OF LICENSING

1. Licensee able to become a competitor in future, after the contract expires

2. Licenser must get licensee to meet contractual obligations

3. Licenser must get licensee to adjust products or services to fit the licensee’s market

4. The licensing entrepreneur must manage the relationship’s conditions and circumstances, as well as resolve conflicts or misunderstanding as they occur

5. The integrity and independence of both the licenser and licensee must be maintainedChapter 17.3.0 : Entering the International Marketplace – A Procedure Outline

Step 1: Conduct ResearchStep 2: Prepare a Feasibility StudyStep 3: Secure Adequate FinancingStep 4: File the Proper Documents

Step 5: Draw Up and Implement the Plan

_______________________________________

Step 1: Conduct Research

- Search for international market; foreign embassies- Conduct research from the list given by the foreign embassies- Obtain data at the Ministry of International Trade and Industry

Step 2: Prepare a Feasibility Study

Objective: The feasibility study is a critical document of the entry procedure in that it helps demonstrate how realistic the project is. Because the first few years in the international markets typically will be non-profitable, it is imperative the entrepreneur have sufficient foresight to look at both the long-term and the short-term prospects of the proposal.

I. Identification of international projectII. Statement of feasibilityIII. Summary and/or conclusionIV. Entry selection (select one method and develop complete program)

A. Methods of entry1.Exportinga. Prosb. Cons

2.Joint venturinga. Prosb. Cons

3.Direct investmenta. Prosb. Cons

4.Licensinga. Prosb. Cons

B. Other considerations

1. Financial considerations a. Raw materialsb. Laborc. Tax incentive and allowance

2. Governmental considerations a. Stabilityb. Regulations

3. Distribution a. Modes of transportationb. Channels

V. Market profile

A. Overview: target market1. Population2. Major cities3. Language4. Climate5. Geography6. Imports7. Exports8. Exchange rate9. Transportation10. Communication11. Business practices12. Business hours

B. Society/culture: background of societyC. Major demographic factors1. Income2. Occupation3. Education4. Religion

D. Political climate: backgroundE. economic climateF. Outlook for tradeG. Opportunities and restraints

VI. Targeted consumer analysis

VII. Legal considerations

A. Trade policyB. Registration of companyC. Ownership of the business entityD. Government policy on foreign investmentE. Industrial property protection

VIII. Risk identification and analysis

A. Financial risk and property/business seizureB. Repatriation of capitalC. Political risk1. Foreign relations with other strong economic countries2. Governmental stability

IX. Financial consideration

A. Type of financing for proposed projectB. Source of financing1. Internal2. World Bank3. Other

C. Break-even analysis1. Return on investment2. Return on total assets employed3. Sales forecast

D. Taxation considerationsE. Policy on repatriation of profits

X. Labor and managerial considerations

A. Organized labor1. Description2. Bargaining tools

B. Work characteristic1. Hours worked2. Pay rates

C. Recruitment1. Local2. Expatriate3. Third country

D. Management1. Local2. Expatriate3. Compensation

XI. Control strategies

A. Difficulty of international control1. Distance

2. Diversity3. Degree of certainty

B. Centralized versus decentralized

C. Policy

XII. Timetable for implementation

Step 3: Secure Adequate Financing

- Open bank account with the business or irrevocable letter of credit to guarantees payment,

Or seek government financial guarantee; OPIC (Overseas Private Investment Corporation), EXIMBANK (Export-Import Bank).

Step 4: File the Proper Documents - Follow the standard format in preparing documents.

Step 5: Draw Up and Implement the Plan

– define the firm’s policy

- ensure that the firm is efficiently organized for international operations and focus observation on marketing and finance. Marketing department is charged with creating export sales, and finance department provides proves of the received payments

- once accomplished out the plan into action completely with the timetable, or schedule that indicates the key tasks of the implementation process.