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ENTREPRENEURSHIP: STARTING & OPERATING A SMALL BUSINESS
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ENTREPRENEURSHIP: STARTING & OPERATING A SMALL BUSINESS
Fourth Edition
Steve Mariotti • Caroline Glackin
Boston Columbus Indianapolis New York San Francisco Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montréal Toronto
Delhi Mexico City São Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo
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Library of Congress Cataloging-in-Publication Data Mariotti, Steve, 1953- Entrepreneurship: starting & operating a small business/Steve Mariotti, Caroline Glackin.—Fourth Edition. pages cm Includes index. ISBN 978-0-13-393445-8—ISBN 0-13-393445-4 1. New business enterprises—Management. 2. Entrepreneurship. I. Glackin, Caroline. II. Title. HD62.5.M3567 2015 658.1’1—dc23
2014032028
10 9 8 7 6 5 4 3 2 1
ISBN 10: 0-13-393445-4 ISBN 13: 978-0-13-393445-8
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Special thanks to Shelby Cullom Davis. Also thanks to Kathryn Davis, Shelby M. C. Davis,
Kimberly La Manna, Abby Moffat, and Diana Davis Spencer.
—Steve Mariotti
To my children, Elise and Spencer, whose support and love are essential parts of this book.
To my parents, Howard and Maria Wiedenman, who truly understood the importance of education. My love and gratitude.
—Caroline Glackin
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Brief Contents
UNIT 1 Entrepreneurial Pathways 1 Chapter 1 Entrepreneurs Recognize
Opportunities 2 Chapter 2 The Business Plan: Road Map
to Success 34 Honest Tea Business Plan 65
Chapter 3 Creating Business from Opportunity 92
Unit 1 Entrepreneurial Pathways: SPANX—Idea to Entrepreneurial Opportunity 123
UNIT 2 Integrated Marketing 127 Chapter 4 Exploring Your Market 128 Chapter 5 Developing the Right Marketing
Mix and Plan 156 Chapter 6 Smart Selling and Effective
Customer Service 196 Unit 2 Integrated Marketing:
Kitchen Arts & Letters, Inc.—An Independent Bookstore Defies Industry Odds 219
UNIT 3 Show Me the Money: Finding, Securing, and Managing It 223
Chapter 7 Understanding and Managing Start-Up, Fixed, and Variable Costs 224
Chapter 8 Using Financial Statements to Guide a Business 250
Chapter 9 Cash Flow and Taxes 286 Chapter 10 Financing Strategy & Tactics 316 Unit 3 Show Me the Money: Finding,
Securing, and Managing It— Lee’s Ice Cream 346
UNIT 4 Operating a Small Business Effectively 351
Chapter 11 Addressing Legal Issues and Managing Risk 352
Chapter 12 Operating for Success 384 Chapter 13 Management, Leadership, &
Ethical Practices 416 Unit 4 Operating a Small Business
Effectively: ONLC Training Centers—Virtual IT Training in a Classroom 453
UNIT 5 Cashing in the Brand 457 Chapter 14 Franchising, Licensing,
and Harvesting: Cashing in Your Brand 458
Unit 5 Cashing in the Brand: Honest Tea— From Start-Up to Harvest 477
Appendix 1 Sample Student Business Plan 483 Appendix 2 BizBuilder Business Plan 511 Appendix 3 Resources for Entrepreneurs 519 Appendix 4 Useful Formulas and Equations 525
Glossary 527 Index 533
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UNIT 1 Entrepreneurial Pathways 1
Chapter 1 Entrepreneurs Recognize Opportunities 2 Entrepreneurship 3
What Is an Entrepreneur? 3
The Free-Enterprise System 4
Voluntary Exchange 5
Benefits and Challenges of Free Enterprise 5
What Is a Small Business? 6
Definitions of Success—Monetary and Other 6
Taking the Long View 7
Benefits and Costs of Becoming an Entrepreneur 7
Potential Benefits of Entrepreneurship 8
Potential Costs of Entrepreneurship 9
Cost/Benefit Analysis 10
Opportunity Cost 11
Seeking Advice and Information to Succeed 11
Entrepreneurial Options 13 How Do Entrepreneurs Find Opportunities to Start New Businesses? 15
Entrepreneurs Creatively Exploit Changes in Our World 15
Where Others See Problems, Entrepreneurs Recognize Opportunities 16
Train Your Mind to Recognize Business Opportunities 16
Entrepreneurs Use Their Imaginations 17
An Idea Is Not Necessarily an Opportunity 17
Opportunity Is Situational 18
The Five Roots of Opportunity in the Marketplace 18
Integrating Internal and External Opportunities 18
Establishing Strategies 19
Paths to Small Business Ownership 20 Securing Franchise Rights 21
Buying an Existing Business 21
Licensing Technology 21
The Many Faces of Entrepreneurship 22
Making the Business Work Personally and Professionally 23
A Business Must Make a Profit to Stay in Business 23
Profit Is the Sign That the Entrepreneur Is Adding Value 23
Profit Results from the Entrepreneur’s Choices 23
Seven Rules for Building a Successful Business 24
The Team Approach 24
Chapter 2 The Business Plan: Road Map to Success 34 Feasibility Analysis: Does My Idea Work? 36
Analyzing Product and/or Service Feasibility 36
Analyzing Market and Industry Feasibility 37
Analyzing Financial Feasibility 39
Creating a Business Model Canvas 40 What Is a Business Plan? 43 Why Do You Need a Business Plan? 44
Writing a Business Plan Early Will Save You Time and Money 44
Your Business Plan Is the Key to Raising Capital 45
The Business Plan Is an Operations Guide 45
Business Plan Components 45 Cover Page and Table of Contents 46
Executive Summary: A Snapshot of Your Business 46
Mission and Culture: Your Dreams for the Organization 47
Company Description—Background and Track Record 48
Opportunity Analysis and Research— Testing Ideas 48
Marketing Strategy and Plan: Reaching Customers 49
Management and Operations: Making the Plan Happen 50
Financial Analysis and Projections: Translating Action into Money 51
Funding Request and Exit Strategy: The Ask and the Return 55
Appendices: Making the Case in Greater Detail 56
Contents
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CONTENTS
Business Plan Suggestions 56 Presenting Your Business Plan 57 Business Plan and Venture Competitions 59
Honest Tea Business Plan 65
Chapter 3 Creating Business from Opportunity 92 Apple and the Personal Computer 93 Business Definition 94 What Sort of Organization Do You Want? 95
Your Company’s Core Values 95
Your Company’s Mission Is to Satisfy Customers 96
Your Company’s Vision Is the Broader Perspective 97
Your Company’s Culture Defines the Work Environment 97
The Decision Process 98
Your Competitive Advantage 99 Find Your Competitive Advantage by Determining What Consumers Need and Want 100
You Have Unique Knowledge of Your Market 100
The Six Factors of Competitive Advantage 101
Is Your Competitive Advantage Strong Enough? 101
Checking Out the Competition 102
The Most Chocolate Cake Company 103 Competitive Strategy: Business Definition and Competitive Advantage 105
Feasibility Revisited: The Economics of One Unit as a Litmus Test 106
Defining the Unit of Sale 107
Cost of Goods Sold and Gross Profit 107
Your Business and the Economics of One Unit 108
The Cost of Direct Labor in the EOU— An Example 110
Hiring Others to Make the Unit of Sale 110
Going for Volume 111
Determining the Value of a Business 113
Asset Valuation Method 113
Earnings Valuation Method 113
Cash Flow Valuation Method 114
Unit 1 Entrepreneurial Pathways: SPANX—Idea to Entrepreneurial Opportunity 123
UNIT 2 Integrated Marketing 127
Chapter 4 Exploring Your Market 128 Markets and Marketing Defined 130
A Business That Markets versus a Market-Driven Business 130
Research Prepares You for Success 130 Research Your Market Before You Open Your Business 130
Types and Methods of Research 131
Getting Information Directly from the Source: Primary Research 131
Getting Information Indirectly: Secondary Research 133
Research Helps You Know Your Customer 135
Customer Research 135
Industry Research: The 50,000-Foot Perspective 137
Make Research an Integral Part of Your Business 138
How Customers Decide to Buy 139 Owning a Perception in the Customer’s Mind 140
Features Create Benefits 140
Home Depot: Teaching Customers So They Will Return 141
Which Segment of the Market Will You Target? 141
Successful Segmenting: The Body Shop 142
Applying Market Segmentation Methods 142
The Product Life Cycle 144
Is Your Market Saturated? 146
Market Positioning: Drive Home Your Competitive Advantage 146 Developing a Marketing Plan 147
Chapter 5 Developing the Right Marketing Mix and Plan 156 The Four Marketing Factors 157 Product: What Are You Selling? 158
Create Your Total Product or Service Concept 158
Focus Your Brand 159
Ford’s Costly Failure: The Edsel 159
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CONTENTS
Chapter 6 Smart Selling and Effective Customer Service 196 Selling Skills Are Essential to Business Success 197
Selling Is a Great Source of Market Research 198
The Essence of Selling Is Teaching 198
The Principles of Selling 198
The Sales Call 200 Electronic Mail, Blogs, and Social Networks 200
Prequalify Your Sales Calls 201
Focus on the Customer 201
The Eight-Step Sales Call 202
Three Call Behaviors of Successful Salespeople 203
Analyze Your Sales Calls to Become a Star Salesperson 204
Turning Objections into Advantages 204
Use Technology to Sell 205
Successful Businesses Need Customers Who Return 206
Customer Service Is Keeping Customers Happy 206
The Costs of Losing a Customer 206
Customer Complaints Are Valuable 207
Customer Relationship Management Systems 208
Why Does CRM Matter? 209
Components of CRM for the Small Business 210
How Technology Supports CRM 211
Unit 2 Integrated Marketing: Kitchen Arts & Letters, Inc.—An Independent Bookstore Defies Industry Odds 219
UNIT 3 Show Me the Money: Finding, Securing, and Managing It 223
Chapter 7 Understanding and Managing Start-Up, Fixed, and Variable Costs 224 What Does It Cost to Operate a Business? 225 Start-Up Investment 226
Brainstorm to Avoid Start-Up Surprises 226
Keep a Reserve Equal to One-Half the Start-Up Investment 227
Predict the Payback Period 228
Estimate Value 229
Ford’s Focus on Success: The Mustang 160
How to Build Your Brand 160
Price: What It Says about Your Product 162
Strategies and Tactics for Effective Pricing 162
Place: Location, Location, Location! 164 Key Factors in Deciding on a Location 165
Promotion: Advertising + Publicity 165 Use Integrated Marketing Communications for Success 165
Reinforce the Company’s Unique Selling Proposition 166
Promotional Planning 167 Determine a Promotional Budget 167
The Advertising Advantage 169 Types of Advertising 170
Media Planning and Buying: Focus on Your Customer 170
Marketing Materials Should Reinforce Your Competitive Advantage 171
Sales-Promotion Solutions 172 When to Use Promotional Tools 172
Advertising Specialties 172
Trade Show Exhibits 172
Mall Carts or Kiosks 173
Alternative Marketing 174 Other Media Venues 175
E-Active Marketing 175 Publicity Potential 179
Generating Publicity 179
Telling the Story 179
Sample Press Release 180
Follow Up a Press Release 180
Public Relations 180
The Fifth P: Philanthropy 182 Cause-Related Marketing 182
Gaining Goodwill 183
Not-for-Profit Organizations 183
What Entrepreneurs Have Built 184
You Have Something to Contribute 184
Developing a Marketing Plan 184 Marketing Analysis 185
Marketing as a Fixed Cost 185 Calculate Your Breakeven Point 186
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CONTENTS
Rules to Keep Cash Flowing 289
Noncash Expenses Can Distort the Financial Picture 289
The Working Capital Cycle 289 The Cyclical and Seasonal Nature of Cash Flow 290
Reading a Cash Flow Statement 292
The Cash Flow Equation 292
Forecasting Cash Flow: The Cash Budget 292
Creating a Healthy Cash Flow 293
Managing Inventory to Manage Cash 295
Managing Receivables to Manage Cash 297
The Cash Effects of Accounts Receivable 297
The Life Cycle of Accounts Receivable 297
The Financing of Accounts Receivable 298
Managing Accounts Payable to Manage Cash 299
Negotiating Payment 299
Timing Payables 299
Capital Budgeting and Cash Flow 300 The Burn Rate 301
The Value of Money Changes Over Time 301
The Future Value of Money 301
The Present Value of Money 303
Taxes 304 Cash Flow and Taxes 304
Filing Tax Returns 304
Collecting Sales Tax 305
Tax Issues for Different Legal Structures 305
Make Tax Time Easier by Keeping Good Records 306
Chapter 10 Financing Strategy & Tactics 316 Going It Alone Versus Securing Financing 317
How Often Do Small Businesses Really Fail? 318
What Is the Best Type of Financing for You and Your Business? 318 Gifts and Grants 319 Debt Financing 320
Debt Financing: Pros and Cons 320
Equity Financing 322 Equity Financing: Pros and Cons 323
Fixed and Variable Costs: Essential Building Blocks 230 Calculating Critical Costs 230
Calculating Total Gross Profit (Contribution Margin) 231
Calculating EOU When You Sell Multiple Products 231
Fixed Operating Costs 233
Fixed Operating Costs Do Change Over Time 233
Allocate Fixed Operating Costs Where Possible 234
The Dangers of Fixed Costs 235
Using Accounting Records to Track Fixed and Variable Costs 235
Three Reasons to Keep Good Records Every Day 236
Cash versus Accrual Accounting Methods 238
Recognizing Categories of Costs 239
Chapter 8 Using Financial Statements to Guide a Business 250 Scorecards for the Entrepreneur: What Do Financial Statements Show? 251 Income Statements: Showing Profit and Loss Over Time 252
Parts of an Income Statement 252
A Basic Income Statement 253
The Double Bottom Line 253
An Income Statement for a More Complex Business 254
The Balance Sheet: A Snapshot of Assets, Liabilities, and Equity at a Point in Time 256
Short- and Long-Term Assets 257
Current and Long-Term Liabilities 258
The Balance Sheet Equation 258
The Balance Sheet Shows Assets and Liabilities Obtained through Financing 258
The Balance Sheet Shows How a Business Is Financed 259
Analyzing a Balance Sheet 260
Depreciation 262
Financial Ratio Analysis: What Is It and What Does It Mean to You? 262
Income Statement Ratios 262
Balance-Sheet Analysis 265
Chapter 9 Cash Flow and Taxes 286 Cash Flow: The Lifeblood of a Business 287
The Income Statement Does Not Show Available Cash 288
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xiii CONTENTS
The Uniform Commercial Code (UCC) 364 The Law of Agency 364 Bankruptcy 365 Protecting Intangible Assets: Intellectual Property 367
Trademarks and Service Marks 367
Copyright 369
Electronic Rights 369
Patents 370
Protecting Tangible Assets: Risk Management 371
Insurance Protects Your Business from Disaster 371
Basic Coverage for Small Business 371
How Insurance Companies Make Money 372
Protect Your Computer and Data 373
Disaster Recovery Plans 373
Licenses, Permits, and Certificates 374
Chapter 12 Operating for Success 384 Operations Permit Businesses to Deliver on Their Promises 386 The Production-Distribution Chain 386 Supply Chain Management 387
Finding Suppliers 388
Managing Inventory 388
Facilities, Location and Design 390 Key Factors in Deciding on a Location 391
Facilities Design and Layout 394
Special Considerations for Home-Based Businesses 398
Special Considerations for Web-Based Businesses 398
Defining Quality: It Is a Matter of Market Positioning 399
Profits Follow Quality 399
Organization-Wide Quality Initiatives 400 Benchmarking 400
ISO 9000 401
Six Sigma 402
Total Quality Management 402
Malcolm Baldrige Award 402
Using Technology to Your Advantage 403 Computer Access Is Essential 403
Capture the Potential of the Telephone 404
Identify Market-Specific Software and Technology 404
Electronic Storefront (Web Site) 405
Where and How to Find Capital That Works for You 324
Having an Excellent Business Plan Goes a Long Way 324
How Capital Sources Read Your Business Plan 324
Family and Friends 324
Financial Institutions and Dimensions of Credit 324
Community Development Financial Institutions (CDFIs) 328
Venture Capitalists 329
Angels 330
Insurance Companies 331
Vendor Financing 331
Federally Supported Investment Companies 331
Financing for Rural/Agricultural Businesses 332
Self-Funding: Bootstrap Financing 332
Accessing Sources Through Online Networking 332 Investors Want Their Money to Grow: Can You Make It Happen? 333
How Stocks Work 334
How Bonds Work 335
Unit 3 Show Me the Money: Finding, Securing, and Managing It— Lee’s Ice Cream 346
UNIT 4 Operating a Small Business Effectively 351
Chapter 11 Addressing Legal Issues and Managing Risk 352 Business Legal Structures 353
Sole Proprietorship 353
Partnership 355
Corporation 356
Tips for Entrepreneurs Who Want to Start a Nonprofit Organization 358
Contracts: The Building Blocks of Business 361
Working with an Attorney 361
Drafting a Contract 362
Letter of Agreement 363
Breach of Contract 363
Small Claims Court 363
Arbitration 363
A Contract Is No Substitute for Trust 363
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CONTENTS
UNIT 5 Cashing in the Brand 457
Chapter 14 Franchising, Licensing, and Harvesting: Cashing in Your Brand 458 What Do You Want from Your Business? 459
Continuing the Business for the Family 460
Growth through Diversification 460
Growth through Licensing and Franchising 461
Focus Your Brand 461
When Licensing Can Be Effective 461
Franchising Revisited from the Franchisor Perspective 462
How a McDonald’s Franchise Works 462
Do Your Research before You Franchise 463
Harvesting and Exiting Options 463 When to Harvest Your Business 463
How to Value a Business 464
The Science of Valuation 465
Creating Wealth by Selling a Profitable Business 465
Harvesting Options 466
Exit Strategy Options 468 Investors Will Care about Your Exit Strategy 469
Unit 5 Cashing in the Brand: Honest Tea— From Start-Up to Harvest 477
Appendix 1 Sample Student Business Plan 483 Appendix 2 BizBuilder Business Plan 511 Appendix 3 Resources for Entrepreneurs 519 Appendix 4 Useful Formulas and Equations 525
Glossary 527 Index 533
Chapter 13 Management, Leadership, & Ethical Practices 416 The Entrepreneur as Leader 417
Leadership Styles That Work 417
How Entrepreneurs Pay Themselves 418
Manage Your Time Wisely 419
Business Management: Building a Team 420
What Do Managers Do? 421
Adding Employees to Your Business 421 Growing Your Team 427
Creating and Managing Organizational Culture 428
Determining Organizational Structure 428
Getting the Best Out of Your Employees 430
Human Resources Fundamentals 430 Performance Management 432
Firing and Laying Off Employees 434
Ethical Leadership and Ethical Organizations 434
An Ethical Perspective 435
Establishing Ethical Standards 435
Corporate Ethical Scandals 436
Doing the Right Thing in Addition to Doing Things Right 438
Balancing the Needs of Owners, Customers, and Employees 438
Social Responsibility and Ethics 438 Leading with Integrity and Examples 439
Encourage Your Employees to Be Socially Responsible 439
Unit 4 Operating a Small Business Effectively: ONLC Training Centers—Virtual IT Training in a Classroom 453
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Entrepreneurship: Starting and Operating a Small Business (ESOSB), Fourth Edition, is the newest edition in a line of entrepreneurship textbooks written by Steve Mariotti, founder of the Network for Teaching Entrepreneurship (NFTE). Once again, it is written with professor and entrepreneur Caroline Glackin, and it promotes entrepreneurship as a career option for college students.
Business students, as well as those from other disciplines, can benefit from ESOSB. For business students, it recasts their prior learning from a typical corporate context and focuses it on small and entrepreneurial enterprises. For students in such fields as hospitality, the arts, engineer- ing, and fashion merchandising, the text introduces key business con- cepts and provides examples from a broad range of careers. Cases from hospitality, technology, retail, manufacturing, distribution, real estate, finance, and not-for-profit organizations bring a wealth of learning oppor- tunities. Most importantly, ESOSB 4e is a balanced mix of the academic and applied components of entrepreneurship education. Students are introduced to the theories, methods, and knowledge and skills required of entrepreneurs and are immediately given practical examples and discus- sion opportunities. Using the Application Exercises and Exploring Online features at the end of each chapter, they are encouraged to take this new knowledge and apply it in their own lives, so that the course materials are reinforced and internalized.
Highlights of New Content and Changes Entrepreneurship: Starting and Operating a Small Business, Fourth Edition, contains new content and some changes, including the following:
■ Three new Chapter Openers include Mercedes, University Parent, and inDinero.
■ Nine new short End-of-Chapter Case Studies: Urban Decay, Gat Creek Furniture, Gentle Rest Slumber, Dr. Farrah Gray, Happy Belly Curbside Kitchen, BNI, Gelato Fiasco, The Bun Company, and Anago Cleaning Systems.
■ Seven new longer End-of-Chapter Case Studies: Foursquare, Empact, Amazon.com, Damon White Party Promotions, Airbnb, AYZH, and iContact.
■ All new Unit Cases. These are more interesting and relatable for students and include: Spanx, Kitchen Arts & Letters, Inc., Lee’s Ice Cream, ONLC Training Centers, and Honest Tea.
■ Step into the Shoes, Entrepreneurial Wisdom, BizFacts, and Global Impact Features. These have been updated and expanded with 16 new featured items, including 12 Step into the Shoes and 4 Global Impact Features. Among the newly featured people and organiza- tions are: Indeed.com, In-N-Out Burgers, Sweet dis(Solve), Twitter, ContextMedia, Mental Floss, Zhang Xin, P’Kolino, Jack Threads,
Preface
Helping Students Own Their Future
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PREFACE
Rent the Runway, Tom’s, Vostu, American Public University, and TechWorld These features connect chapter content to business facts and examples to reinforce learning.
■ Honest Tea Featured Business Plan. From its early stage funding search, this example provides students with an interesting start-up plan for a company that is also featured in the Unit 5 case. This bookends the contents of the text.
■ Business Model Canvas. The Osterwalder and Pigneur Business Model Canvas is introduced in Chapter 2 with the example of the University Parent Business Plan that is included in Appendix 1. Students are encouraged to develop a business model and to explore the Lean Startup process.
■ BizBuilder Business Plan Questions. These have been modified to clarify the work and connect the content to student work using the business plan templates.
■ Chapter Learning Objectives. The objectives have been revised to conform more fully to the categories of knowledge acquisition, comprehension, application, analysis, synthesis, and evaluation commonly assessed in higher education.
Combining Street Smarts and Academic Smarts Entrepreneurship: Starting and Operating a Small Business, Fourth Edition, is an extension of the academic programs developed by Steve Mariotti under the auspices of NFTE. Since 1987, NFTE has reached over 500,000 graduates and trained more than 5,000 teachers in 15 countries to impart its innovative entrepreneurship curriculum through its 17 U.S. sites and 8 international program partners. NFTE is widely viewed as a world leader in promoting entrepreneurial literacy and has a proven track record of helping young people start a great variety of successful ventures.
This textbook unites Steve Mariotti’s experience with relevant aca- demic theory and practice, supported by a rich variety of examples and stories. Caroline Glackin brings years of experience in the university class- room, as a lender to small and microbusinesses, and as an entrepreneur and small business owner. Together, these two authors have produced a text that is practical, useful, and academically strong.
Organization Entrepreneurship: Starting and Operating a Small Business, Fourth Edition, is organized to follow the life cycle of an entrepreneurial venture from con- cept through implementation into harvesting or replication. It is a compre- hensive text written in light of the reality that college students often take only one course in entrepreneurship and the topic is covered in a multitude of ways. For instructors who will teach the course as a “business plan,” ESOSB 4e offers step-by-step content to build a plan over a semester or a quarter. For those who focus on the management of small and entrepre- neurial ventures, there is an abundance of high-quality material on the critical topics of management, human resources, marketing, and opera- tions for such ventures. For those charged with teaching a comprehensive introductory course, all of the components are provided.
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Chapter Learning System Chapter Openers Set the Stage
Each chapter starts with an inspirational quote, an introduction, and Learning Objectives that provide a “road map” so readers know where they are headed. Readers connect with a story of a real business in the opening vignette that sets the stage for upcoming material.
Entrepreneurs Recognize Opportunities
CH AP
TE R
1 Learning Objectives 1. Summarize what entrepre-
neurs do.
2. Examine how free-enterprise economies work and how entrepreneurs fit into them.
3. Identify and evaluate opportunities to start your own business.
4. Explain how profit works as a signal to the entrepreneur.
T om Szaky was a 20-year-old college student in need of inspiration for a business plan competition, when he happened to visit friends who were using red worms to compost waste that they then used as plant fertilizer. The idea captured his imagina- tion, and he created a business plan for an environmentally friendly company that would convert trash into fertilizer. Although he finished in fifth place in the competi- tion, Szaky moved ahead to make the company a viable venture. 1
TerraCycle Inc. has expanded its product lines to encompass a wide range of recycling and upcycling, including branded products for Target and Kraft Foods. The company is the producer of the world’s first product made from and packed in recy- cled waste: fertilizer generated from waste. Szaky sells to some of the world’s largest retailers, including Wal-Mart, Target, and Home Depot, and oversees programs that involve entire communities in recycling projects. Sales exceed $20 million per year, and the company has collected literally billions of discarded items. TerraCycle plant food was twice named the most eco-friendly product in Home Depot. Tom Szaky and TerraCycle have turned waste into treasure.
Entrepreneurship Have you ever eaten a Subway sandwich? Used an Apple device? Listened to music with Skullcandy headphones? The entrepreneurs that founded these companies brought these products into your world. Entrepreneur- ship is all around us.
What Is an Entrepreneur? Most Americans earn money by working in business . They are somehow engaged in the buying and selling of products or services in order to earn money.
• A product is something that exists in nature or is made by human beings. It is tangible , meaning that it can be physically touched.
• A service is labor or expertise exchanged for money. It is intangible . It cannot physically be touched.
Someone who earns a living by working directly for someone else’s business is an employee of that business. There are many roles for employees. At Ford Motor Company, for instance, some employees build the cars, some sell the cars, and some manage the company. But most employees have one thing in common—they do not own the business; they work for others who do. They know how much money they can earn, and that amount is limited to salary or wages, plus bonuses and any stock options they may receive.
People who have their own businesses work for themselves and are called small business owners, or entrepreneurs . Entrepreneurs are often both owners and employees. For an entrepreneur, the sky is the limit as far as earnings are concerned. Unlike an employee, an entrepreneur owns
“Everyone lives by selling something.” —Robert Louis Stevenson, Scottish author
1 TerraCycle Inc., accessed March 9, 2014, http://www.terracycle.net .
product something tangible that exists in nature or is made by people.
service intangible work that provides time, skills, or expertise in exchange for money.
entrepreneur a person who recognizes an oppor- tunity and organizes and manages a business, assuming the risk for the sake of potential return.
Tom Szaky, Terracycle ( Paul Zimmerman/ Getty Images)
3
“Step into the Shoes” of the Experts
Step into the Shoes features appear in each chapter and offer insight into the business practices of entrepreneurs and an opportunity to discuss the brief example. It brings the content to life with real-world application. 19 CHAPTER 1: Entrepreneurs Recognize Opportunities
the form of the resolution of a problem, such as creating a viable product from scrap material, or the potential for a new product line.
An external opportunity, in contrast, is generated by an outside cir- cumstance. External opportunities are conditions you notice that make you say to yourself, “Hey! I could start a great business from that!” For example, you see that people in your neighborhood are complaining about the lack of available day care, so you start a day care center after con- firming the market need. But what if you find out very quickly that two- year-olds get on your nerves? That can be a major drawback for external opportunities. Your idea may fill a market need, but you may not have the skills or interest to make it a successful business.
The best business opportunities usually combine both internal and external factors. Ideally, a business that you are passionate about fills a sustainable need in the marketplace.
Establishing Strategies Business success depends on the creation and application of profitable strategies. A strategy is a plan for how a business intends to go about its own performance and outdo that of its competition. Michael Porter cre- ated a “strategy framework” that delineates cost leadership and differentia- tion as low-cost and product-uniqueness strategies. 14 It also layers in the concept of focus strategies, which work in narrow market segments rather than broad ones. The illustration in Figure 1-1 shows how each of Porter’s Generic Strategies relates to the other.
A firm using a product-uniqueness strategy bases its competitive ad- vantage on its ability to differentiate the firm’s products and/or services from others in its competitive market space. Such factors as quality, avail- ability, customer service, and the like are critical to differentiation , as will be discussed in greater detail in the marketing chapters of this text .
If you choose to emphasize a low-cost approach, you will be using a “cost-leadership” strategy. You are finding ways to reduce the costs of
perceived opportunities: You may be passionate about something, but there may not be enough consumer interest to sustain an actual business venture.
Simmons loved rap and hoped other people would, too. That was the internal factor—he had the passion to sustain himself as he worked relent- lessly to make his dream come true. As it turned out, music fans at that time were looking for a fresh sound. Rap filled the bill. This was an external op- portunity that coincided with Simmons’s internal commitment. Jeff Greenberg/Alamy
Step into the Shoes . . .
Russell Simmons Makes Rap Happen In the late 1980s, Russell Simmons was promoting rap concerts at the City University of New York. At the time, rap was consid- ered a passing fad, but Simmons was passionate about it. Even though most record executives thought rap would be over in a year or two, Simmons believed it was a business opportunity. He formed Def Jam Records with fellow student Rick Rubin for $5,000. Within a year, they produced hit records by Run DMC and LL Cool J, and Simmons went on to become a multimedia mogul.
Simmons took a chance on this opportunity because he felt that, if you personally know 10 people who are eager to buy your product or service, 10 million would be willing to buy it if they knew about it. He was right about rap’s popular potential, but he could have been wrong. That can be a problem with
strategy a plan for how an organization or individual plans to proceed with business op- erations and outperform that of its competitors.
14 Michael Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York: Free Press, 1998.
BizFacts
BizFacts impart useful information regarding entrepreneurship statistics, company practices, or business applications.
6 UNIT 1: Entrepreneurial Pathways
On the flip side, free enterprise has some disadvantages. If a company fails, its employees are out of work. Owners who have invested their finan- cial resources in the business lose money. Other companies or individuals that depended on the products and services of the failed business them- selves lose customers or suppliers.
What Is a Small Business? Many people think of business only in terms of “big” businesses—companies such as Apple, Wal-Mart, Microsoft, General Motors, and Berkshire Hathaway. However, the vast majority of businesses are small businesses. A small business is defined by the U.S. Small Business Administration’s Office of Advocacy as having fewer than 500 employees and selling less than $5 million worth of products or services annually. A neighborhood restaurant, a mattress manufacturer, a technology research company, and a clothing boutique can all be examples of a small business; even a leading local employer may be classified as “small” under this definition.
The core principles involved in running a large company—like Microsoft—and a corner deli are the same. However, the operations of a small business are not the same as those of a large one. Most multimillion- dollar businesses started out as small, entrepreneurial ventures. This is why entrepreneurship is often called the engine of an economy. It drives economic creativity, giving rise to wealth and jobs and improving the stan- dard of living.
Definitions of Success—Monetary and Other The Millennial Generation (born between 1977 and 1995) has redefined success. It is more individualized than the traditional concept and based on factors beyond those of income and wealth. Business owners may start an enterprise to create a more environmentally friendly approach to a product or process, to provide jobs for a disadvantaged population, or to improve the mental or physical health of themselves or others. For these entrepreneurs, success might be measured by the ability to have an impact on the population they serve. Or, success may mean working to provide a lifestyle that permits a shortened work week or telecommuting. Recogni- tion from peers and others could also be a goal. Financial success may be just one of many measures of achievement for an entrepreneur.
Starting a business is an opportunity, and like any opportunity, it should be evaluated by taking a careful look at all aspects of it. One thing
BizFacts • There are 27.3 million businesses in the United States; approximately 99.9 percent
of them are small companies with fewer than 500 employees. • Small businesses in America employed 49.2 percent of the country’s private
(nongovernment) workforce, hired 43 percent of high-tech workers, and created 64 percent of net new jobs annually over the last decade.
• Home-based businesses make up 52 percent and franchises 2 percent of all small firms.
• Small businesses represent 99.7 percent of all companies with employees. • Small firms constituted 98 percent of all identified exporters and produced 33 percent
of the country’s known export value in fiscal year 2010.
Source: U.S. Small Business Administration, accessed March 9, 2014, http://www.sba.gov.
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Honest Tea Business Plan
This is the plan developed by founders Seth Goldman and Barry Nalebuff during Honest Tea’s first year of operations. It appears following Chapter 2 and includes a comprehensive market analysis and detailed historical financials. The business raised over $1 million at a time when sales were less than $250,000 and the company had operating losses. The Honest Tea plan is an excellent example for students and one that many of them will understand, to some extent, as customers of bottled tea.
Entrepreneurial Wisdom
Entrepreneurial Wisdom contains insights or advice that will help students in the preparation of a business plan or management of an enterprise.18 UNIT 1: Entrepreneurial Pathways
Opportunity Is Situational Opportunity is situational , meaning it is dependent on variable circum- stances. There are no rules about when or where an opportunity might ap- pear. A problem is one example of an opportunity that entrepreneurs need to be able to recognize. A changing situation or a trend is another.
Consider recent changes in computer technology. In the early 1990s, the conventional wisdom was that only the biggest telecommunications companies were in a position to exploit the Internet and all the opportu- nities it had to offer. How could entrepreneurs compete with established, resource-laden companies? The opposite has been true. Entrepreneurs penetrated and have dominated the market for Internet-based services. Think of Facebook, Google, and Foursquare. Each was an entrepreneurial venture that left industry giants scrambling to catch up.
It can take a huge corporation multiple years to develop and imple- ment a new business strategy, while entrepreneurs can be nimble and enter and exit the market like roadrunners. Successful entrepreneurs can “turn on a dime rather than a dollar bill.”
The Five Roots of Opportunity in the Marketplace Entrepreneurs can exploit “five roots of opportunity.” 13 Notice how similar these are to Schumpeter’s definition of entrepreneurship.
1. Problems your business can solve 2. Changes in laws, situations, or trends 3. Inventions of new products or services 4. Competitive advantages in price, location, quality, reputation,
reliability, speed, or other attributes of importance to customers 5. Technological advances that entrepreneurs take from the laboratory
to the marketplace
Integrating Internal and External Opportunities It is helpful not only to be aware of the five roots of opportunity in the marketplace but to think also about how we perceive opportunities our- selves. Opportunities fall into two classes: internal and external. An inter- nal opportunity is one that comes from inside you—from a personal hobby, interest, or even a passion—or inside your organization. These can come in
workable accounting system. These are internal to the organization.
• Opportunities —Any positive external events or circum- stances that can help the entrepreneur get ahead of the competition.
• Threats —Any external factors, events, or circumstances that can harm the business, such as competitors, legal issues, or declining economies.
A useful way to evaluate a business idea is to look at its strengths, weaknesses, opportunities, and threats (SWOT). This is called SWOT analysis .
• Strengths —All the capabilities and positive points the company has, from experience to contacts. These are internal to the organization.
• Weaknesses —All the negatives the company faces, such as lack of capital or training or failure to set up a
Entrepreneurial Wisdom . . .
13 Adapted from John Clow (ed.), Master Curriculum Guide: Economics and Entrepreneurship , New York: Joint Council on Eco- nomic Education, 1991.
Global Impact
Global Impact, featured in each chapter, provides examples of entrepre- neurial ventures around the world or information that can be applied in global trade.
47 CHAPTER 2: The Business Plan: Road Map to Success
This section should be written last and limited to one or two pages. It should answer the who , what , when , why , and how questions for the business. Who will manage the business? What will it do, and what is the owner asking for in the plan? When will the proposed plan be imple- mented? How will the business succeed? Done well, the reader will have a “light-bulb” moment and be eager to read the rest of the plan.
Mission and Culture: Your Dreams for the Organization Each company has the opportunity to create its own unique mission, vi- sion, and culture. The founding team can determine how to strategically use the company’s competitive advantage to satisfy customers. Culture that the owners model and support can be shaped according to the environment and the manner of treating employees, customers, and other stakeholders. The mission of your business, expressed in a mission statement, is a concise communication of strategy, including your business definition and competi- tive advantage . The function of a mission statement is to clarify what you are trying to do, and it can provide direction and motivation to those who are involved in the business.
A clearly stated mission statement not only tells your customers and employees what your business is about, but can also be a guide for every decision you make. It should capture your passion for the business and your commitment to satisfying your customers. The mission statement should be clear and concise, no more than 21 to 40 words.
The vision for your business will be broader and more comprehen- sive, painting the big picture of what you want your organization to be- come. It is built on the core values and belief system of the organization. It is typically shorter than the mission statement, with a loftier perspective.
The culture of an organization, whether intentionally or unintentionally created, is largely defined by its leadership. You can build a culture for your company by making beliefs, values, and behavioral norms explicit and inten- tional. A business’s culture has many components, including attitudes toward risk tolerance and innovation and its orientation with respect to people, team formation and outcomes, attention to detail, and communication. Whether you want a free-thinking, aggressive company with informal communica- tions or a structured, formal organization with more “official” interactions, you will set the standards and be the role model for your business’s culture.
Global Impact . . .
Upcycling Waste Internationally—TerraCycle, Inc. In 2003, John Szaky’s TerraCycle won a business plan contest from Carrot Capital for $1 million in seed funding. But the venture capital firm wanted TerraCycle to drop its environmental focus, and Szaky turned down the offer. It was a critical decision that later helped the business achieve its competitive advantage.
TerraCycle converts unrecyclable packaging waste to upcycled products. An early inspiration was implemented when TerraCycle ran out of money to buy bottles in which to sell fertilizer derived from worm waste. It was decided to pack it in recycled soda bottles. This concept expanded into the production of other green products. Pencil holders made from Kool-Aid packets, tote bags made from Capri Sun-drink pouches, and backpacks made from Clif Bar wrappers are just
a few examples of the more than one hundred TerraCycle products sold in large retail chains, including Home Depot, Whole Foods, Wal-Mart, and Target. The concept has spread to the United Kingdom, Brazil, Mexico, Israel, and Canada, among others. By working with concerned groups in each country, TerraCycle has the potential of becoming an iconic representative of up- cycled waste. TerraCycle calls this process turning “branded” waste into “sponsored” waste.
Source: TerraCycle, Inc., accessed April 6, 2014, http://www.terracycle.com .
mission a concise commu- nication of strategy, includ- ing a business definition and explanation of competitive advantage.
mission statement a brief, written statement that informs customers and employees what an organization’s goal is and describes the strategy and tactics to meet it.
vision a broader and more comprehensive perspective on an organization than its mission; built on the core values and belief systems of the organization.
culture the beliefs, values, and behavioral norms of an organization.
Wu Kaixiang/Corbis Images
Table of Contents Mission Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
Company Story . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
The Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
The Taste . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
Low in Calories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
Health Benefits of Brewed Tea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73
Cultural Experience of Tea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73
Flagship Line of Flavors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74
Production and Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74
Market Opportunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
Beyond Snapple—The Emerging Market for Quality Bottled Tea . . . . . . . . . . . . . .75
Profile of Target Customer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76
Market Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77
Market Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77
Marketing and Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79
National Natural/Specialty Foods Channels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80
Higher End Food Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80
Promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80
Packaging and Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80
International Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81
Product Development and Future Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81
President & TeaEO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81
Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82
Brewmaster . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82
National Sales Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82
Retail Sales Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82
Consultants and Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82
Statement and Aspirations for Social Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . .83
Financial Statements—Year-to-Date and Projections . . . . . . . . . . . . . . . . . . . . . . . . . . .83
The Investment Opportunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90
The Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90
Financing History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90
Exit Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90
Investment Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90
Competitive Advantage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90
A Parting Thought . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91
Business Plan for 1999 December 1998 4905 Del Ray Avenue, Suite 304 Bethesda, Maryland 20814 Phone: 301-652-3556 Fax: 301-652-3557
E-mail: sethandbarry@honesttea.com
75
B U
S IN
E S
S P
L A
N
1. Explosive growth in Ready-to-Drink (RTD) tea and bottled water markets – Although carbonated soft drinks still dominate the beverage market, in the past ten years Ready- To-Drink teas and bottled water have emerged as alternatives. Since 1992 the US tea market has enjoyed 60% annual growth, reaching sales of $2 billion in 1996. The bottled water market has grown to $2.4 billion, with most of the growth fueled by sales of single-serving bottles.
Our tea leaves are provided by internationally known companies that specialize in tea buy- ing, blending and importation. Our primary source is Hälssen & Lyon of Germany, the largest specialty tea company in the world. Another, Assam Tea Traders, has direct ties to tea estates in the Assam District of Northern India. The other ingredients are commodities which are in plentiful supply.
As the Company grows in size, we anticipate dealing more directly with the tea growers. We intend to visit the tea estates so that we can verify that the labor conditions of the tea work- ers meet international standards and International Labor Organization conventions. We also aspire to ensure that the tea is grown organically.
Market Opportunity
Beyond Snapple–The Emerging Market for Quality Bottled Tea
We have identified four market trends that are fueling demand for Honest Tea within the $72 billion non-alcoholic liquid refreshment beverage market.
Demand for a healthier, genuine bottled tea
Rise of Cultural Creatives
Emergence of tea cultureExplosive growth in RTD tea & water markets
Boom in Natural Foods
Water Soft Drinks
0
2
4
6
8
10
12
14
16
RTD Tea (estimated)
1997 U.S. Beverage consumption in billions of gallons*
*Water and Soft drink � gures come from Beverage Marketing, Inc. The RTD Tea � gure is based on 1997 sales estimate of $2.5 billion, which equates to roughly one billion gallons.
2. Beyond the tea bag – The emergence of tea culture – Snapple and similar brands helped make tea accessible to a broader population. But now in the same way that gourmet coffees have become popular, consumers are beginning to develop an appreciation for finer teas. Over the last six years U.S. loose leaf tea sales have more than doubled, from $1.8 billion
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End-of-chapter materials help students demonstrate a working under- standing of key concepts and develop critical-thinking skills.
All chapters include the following:
■ Key Terms list. ■ Critical Thinking Exercises that require students to consider im-
portant issues and support thoughtful responses. ■ Key Concept Questions that review core topics. ■ Application Exercises that give students a structured opportunity
to reinforce chapter topics through experience. ■ Exploring Your Community and Exploring Online assignments
that invite students to go into their business communities or search online for information.
■ BizBuilder Business Plan Questions, which guide students through the development of business plan components as they learn new information throughout the book.
■ Cases for Analysis, including one short case and one longer case with analytical questions. Cases cover a variety of issues and draw on real business scenarios. Examples of businesses that may be fa- miliar to students include Foursquare, Urban Decay, and Amazon .com. Other organizations that may be less familiar include Happy Belly Curbside Kitchen, Gelato Fiasco, Anago Cleaning Systems, and AYZH. These cases reflect a diverse set of entrepreneurs, industries, and geographic locations.
End-of-Chapter Learning Portfolio
62 UNIT 1: Entrepreneurial Pathways
Entrepreneurship Portfol io
Critical Thinking Exercises 2-1. Shawn is creating a business that provides advertising on public
restroom stall doors. He is funding the project from his personal savings of $5,000 and does not expect to use any outside financ- ing. Should he create a business plan? Why or why not?
2-2. Charity and Devon are planning to license technology from NASA that would make it impossible to accidentally lock a child in a car. The technology is complex, and the market analysis and financial assumptions take up a lot of pages. The two women have written a 63 -page business plan. Explain your concerns about the plan in light of the chapter text.
2-3. What factors make the difference between a good business plan and an excellent one?
2-4. Visit an Internet shopping site, such as the Home Shopping Network ( http://www.HSN.com ) or QVC ( http://www.QVC.com ). Select five products for sale that you find interesting or unusual. Make a list of the products and your explanation of the market opportunities they reflect.
2-5. Explain how this statement applies to business plans: Errors of omission can sometimes be greater than errors of commission.
Key Concept Questions 2-6. Explain why a prospective business founder might want to create
a feasibility study or Business Model Canvas before developing a complete business plan.
2-7. How can spending time researching and writing a business plan save an entrepreneur time and money in the short and long term?
2-8. What are the parts of a Business Model Canvas? How can the entire canvas assist an entrepreneur?
2-9. Explain why the executive summary is the most important section of any business plan.
2-10. One mistake entrepreneurs make in their business plans is that of only including an income statement. What other financial state- ments should be incorporated and why?
2-11. Print an assignment, or any body of text, with 1-inch margins, double spaced, using 12-point Times New Roman. Then, print the same document with 0.8-inch margins, single spaced, using a 10-point Arial typeface. Which is easier to read? Why? How would this relate to a business plan?
2-12. Name three categories of investors/lenders that might have an interest in your business plan.
2-13. Why is it important to identify a business’s culture from the beginning?
116 UNIT 1: Entrepreneurial Pathways
Entrepreneurship Portfol io
Critical Thinking Exercises 3-1. Use the following charts to define a business you would like to
start, and analyze your competitive advantage.
Business Definition Question Response
The Offer. What products and services will be sold by the business?
Target Market. Which customer segments will the business focus on?
Production Capability. How will that offer be produced and delivered to those customers?
Problem Solving. What problem does the business solve for its customers?
Competitive Advantage Question Competitive Difference (USP)
The Offer. What will be better and different about the products and services that will be sold?
Target Market. Which segments of consumers should be the focus of the business to make it as successful as possible?
Production and Delivery Capability. What will be better or different about the way the offer is produced and delivered to those customers?
Your Company Competitor Number 1
Competitor Number 2
Competitor Number3
Attributes Important to Customers
Weight (a)
Rating (b)
Weighted Rating
(c � a * b) Rating
(d)
Weighted Rating
(e � a * d) Rating
(f)
Weighted Rating
(g � a * f) Rating
(h)
Weighted Rating
(i � a * h) Quality
Price
Location
Selection
Service
Speed/ Turnaround
Specialization
Personalization
Total 1.00 _____ _____ _____ _____
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http://www.HSN.com
http://www.QVC.com
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Instructor Resources At the Instructor Resource Center, www.pearsonhighered.com/irc, instruc- tors can easily register to gain access to a variety of instructor resources available with this text in downloadable format. If assistance is needed, our dedicated technical support team is ready to help with the media supplements that accompany this text. Visit http://247.pearsoned.com for answers to frequently asked questions and toll-free user support phone numbers.
The following supplements are available with this text:
■ Instructor’s Resource Manual ■ Test Bank ■ TestGen® Computerized Test Bank ■ PowerPoint Presentations
Student Resources BizBuilder Business Plan Worksheets and Templates Online Go to www.pearsonhighered.com/mariotti to download business plan and presentation templates that will help students write a plan and present it.
■ BizBuilder Business Plan Worksheets provide step-by-step in- structions on building a business plan. The MS Word document contains a comprehensive set of questions and tables organized by business plan section. The Excel document includes Start-Up Costs, Sales Projections, Income Statement, Balance Sheet, Cash Flow, and Ratio Analysis worksheets.
■ BizBuilder Business Plan Template provides a professional-looking format for a business plan that ties in with assignments in the text.
■ BizBuilder Business Plan Presentation Template guides the student through the process of creating a PowerPoint presentation for a business plan.
Students can build their business plans using the BizBuilder work- sheets. Appendix 2 provides students with instructions on how to use the worksheets that mirror the planning process in the book and contains more questions in some areas than are found in commercially available planning software. Once they have created a plan using the worksheets, students can generate a professional-looking document using the BizBuilder Business Plan Template.
LivePlan Through a partnership with Palo Alto Software, we’re able to provide 6-month access to LivePlan at a reduced rate with the purchase of a textbook. Live- Plan simplifies business planning, budgeting, forecasting, and performance tracking for small businesses and startups. Set business goals, compare per- formance to industry benchmarks, and see all your key numbers in an easy- to-use dashboard so you know exactly what’s going on in your business. To order LivePlan with the textbook, use package ISBN 0134072073.
Additional Resources
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http://247.pearsoned.com
http://www.pearsonhighered.com/mariotti
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STEVE MARIOTTI, founder of the Network for Teaching Entrepreneurship (NFTE), is considered one of today’s lead- ing experts in education for at-risk youth. In 1982, he changed career paths when he decided to leave the corporate sector and become a special education teacher in the New York City pub- lic school system.
Mariotti’s first assignment was in the East New York section of Brooklyn, and his last was in the Fort Apache section of the South Bronx. During his six-and-a-half years teaching, Mariotti discovered he could successfully moti-
vate even his most challenging students by teaching them how to run a busi- ness. This experience inspired him to create a new kind of program—the first to bring entrepreneurial education to low-income youth.
In 1987, Mariotti founded The Network for Teaching Entrepreneurship (NFTE). Today, NFTE’s mission is to provide entrepreneurship education pro- grams to young people from low-income communities around the world. NFTE’s programs have a proven track record of success, and the network is widely viewed as the thought leader in the field. NFTE is an active member of the Coun- cil on Foreign Relations. In 2013, Mariotti traveled to Southeast Asia as a guest of the U.S. State Department on a mission to spread entrepreneurial education to youth from emerging economies in the region.
Mariotti was recently nominated for a Pulitzer Prize for his work chroni- cling the lives of entrepreneurs worldwide for The Huffington Post and for a Nobel Peace Prize for his pioneering work in entrepreneurial education. A life- long advocate for low-income students, Mariotti is the recipient of numerous awards including:
■ Ernst & Young Entrepreneur of the Year Award ■ Bernard A. Goldhirsh Social Entrepreneur of the Year Award ■ National Director’s Entrepreneurship Award from the Minority Business
Develop ment Agency of the U.S. Department of Commerce ■ Association of Education Publishers’ Golden Lamp Award ■ ACE/Currie Foundation Humanitarian Venture Award ■ America’s Top High School Business Teacher
In addition, Mariotti has been the subject of many national media profiles on such programs as ABC Evening News and 20/20.
He has authored and coauthored 34 books and workbooks on entrepre- neurship, selling over 10 million worldwide and distributing many more cop- ies for free to at-risk communities, including prisons. His popular book The Young Entrepreneur’s Guide to Starting and Running a Small Business has re- cently been published in a new edition by Random House and is used to teach entrepreneurship from the United States to China, India, and the Middle East. Mariotti is a regular attendee and speaker at The World Economic Forum.
Raised in Flint, Michigan, Mariotti received his B.B.A. in business eco- nomics and his M.B.A. from the University of Michigan, Ann Arbor. He has also studied at Harvard University, Stanford University, and Brooklyn College. He started his professional career as a treasury analyst for Ford Motor Com- pany before founding his own company, Mason Import/Export Services.
About the Authors
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First, sincere thanks to the team of reviewers and consultants who provided insightful feedback during the development of our books:
Harvey Lon Addams, Professor Emeritus, Weber State University, Ogden, UT Elaine Allen, CPA, Vice Chair, Not-for-Profit Sector, Mitchell & Titus, LLP
(EY Global Limited), New York, NY Larry Bennett, President, Benland Innovations, LLC, New York, NY Sunne Brandmeyer, Retired Lecturer/Advisor, Center for Economic
Education, University of South Florida, Tampa, FL Stanlee Brimberg, Teacher, Bank Street School for Children, New York, NY Howard W. Buffett, Jr. John R. Callister, Cornell University, Ithaca, NY John D. Christesen, Westchester Community College, Valhalla, NY Steve Colyer, Miami Dade College, Miami, FL Alan J. Dlugash, CPA, Partner, Marks Paneth LLP Alex Dontoh, New York University, New York, NY Thomas Emrick, Executive Director, Smithsonian Science Education Center,
Washington, DC Joyce Ezrow, Anne Arundel Community College, Arnold, MD Rita Friberg, Pueblo Community College, Pueblo, CO George Gannage, Jr., West Georgia Technical College, Carrollton, GA Janet P. Graham, Coastal Carolina University, Conway, SC Vada Grantham, Des Moines Area Community College, Ankeny, IA
Acknowledgments
xxii ACKNOwLEDGMENTS
CAROLINE GLACKIN, Ph.D., is a “pracademic” who has successfully worked as a microenterprise and small business owner and manager, as an executive director of a commu- nity development financial institution, and as an academic in areas of community development finance, entrepreneur- ship, and management. She is the Edward L. Snyder En- dowed Chair for Business at Shepherd University in West Virginia. She has been assisting entrepreneurs in achieving their dreams for over 30 years.
Glackin earned a doctorate from the University of Del- aware, where her research emphasis was on microfinance.
She received an M.B.A. from The Wharton School at the University of Pennsyl- vania and a B.A. from Bryn Mawr College. Her professional career began with the DuPont Company, American Bell, Bell Atlantic, and American Management Systems. She has consulted for businesses and not-for-profit agencies in turn- around and high-growth situations. After exiting a family business, she became the executive director of a community development financial institution serving businesses and not-for-profits.
Dr. Glackin has succeeded in leading change in the practical fields of her research and has received numerous honors and awards. These include the first Gloeckner Business Plan Award at The Wharton School, the Minor- ity Business Advocate of the Year for Delaware from the U.S. Small Business Administration, and the She Knows Where She’s Going Award from Girls Inc. Dr. Glackin cochaired the Delaware Governor’s Task Force for Financial Inde- pendence. She has participated in the Cornell University Emerging Markets Think Tank Series and has presented her research and pedagogy at numerous professional conferences.
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John Harris, Eastern High School, Bristol, CT Deborah Hoffman, CPA, Director of Finance, Math for America Donald Hoy, Benedictine College, Atchison, KS Samira Hussein, Johnson County Community College, Overland Park, KS Eileen M. Kearney, Montgomery County Community College, Blue Bell, PA Sanford Krieger, Esq., General Counsel & Managing Director, AEA Investors LP Jawanza Kunjufu, D.B.A., President, African-American Images Corey Kupfer, Esq., Partner, Hamburger Law Firm, Englewood, NJ Walter E. Lara, Florida Community College, Jacksonville, FL Emily H. Martin, Faulkner State College, Bay Minette, AL Alaire Mitchell, Former Assistant Director of Curriculum Research,
New York City Board of Education, New York, NY Timothy R. Mittan, Southeast Community College, Lincoln, NE Eric Mulkowsky, Senior Management Consultant, Robin Hood Foundation,
New York, NY Raffiq Nathoo, Retired Senior Managing Director, The Blackstone Group, LP,
New York, NY Ray E. Newton, III, Senior Managing Director, Evercore Capital Partners,
New York, NY Arnold Ng, Pepperdine University, Rancho Palos Verdes, CA William H. Painter, Retired, George Washington University, Washington, DC Peter Patch, President, Patch and Associates, San Francisco, CA Alan Patricof, Founder and Managing Director, Apax Partners and Greycroft
LLC, New York, NY Carolyn J. Christensen, CPA, Westchester Community College, Valhalla, NY Laura Portolese-Dias, Shoreline Community College, Seattle, WA Christopher P. Puto, University of St. Thomas, Minneapolis, MN Richard Relyea, President, NY Private Equity Network (NYPEN),
New York, NY Linda Ross, Rowan University, Glassboro, NJ Ira Sacks, Esq., Partner, Law Offices of Ira S. Sacks LLP, New York, NY William A. Sahlman, Harvard Business School, Cambridge, MA Arnold Scheibel, MD, University of California at Los Angeles,
Los Angeles, CA William Searle, Asnuntuck Community College, Enfield, CT LaVerne Tilley, Gwinnett Technical College, Lawrenceville, GA Marsha Timmerman, LaSalle University, Philadelphia, PA Liza Vertinsky, Emory University, Atlanta, GA Peter B. Walker, Managing Director, McKinsey and Company, Inc.,
New York, NY Donald A. Wells, University of Arizona, Tucson, AZ Dennis R. Williams, Pennsylvania College of Technology, Williamsport, PA
I would like to thank my coauthor, Caroline Glackin, without whose talent and expertise this text would not have been possible, and Tony Towle, who from NFTE’s inception has helped me organize my thoughts and experiences. I must also single out the help of two outstanding educators: John Harris and Peter Patch. Special thanks as well to Stephanie Wall, Daniel Tylman, Claudia Fernandes, Ilene Kahn, and the rest of the team at Pearson for their professional- ism and editorial assistance.
Thanks also to Heather Van Sickle, President and CEO of the National Association of Community College Entrepreneurship (NACCE), and to Tony Mendes, President of the United States Association for Small Business and Entrepreneurship (USASBE), as well as the hundreds of members of these associations that have adopted Mariotti and Glackin texts to teach entrepre- neurship to college students.
xxiii ACKNOwLEDGMENTS
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Additionally, I am grateful to Howard Stevenson, William Bygrave, Bob Pritzker, Stephen Spinelli, and the late Jeffry Timmons for imparting their wisdom; and to Richard Fink of Koch Industries; Carl Schramm, formerly of the Ewing Marion Kauffman Foundation; and Mike Hennessy and John Hughes of the Coleman Foundation. Special thanks to Eddy Bayardelle and Melanie Mortimer of Merrill Lynch Global Philanthropy, and Kim Davis of Teneo Holdings.
Further, I would like to acknowledge Steve Alcock, Harsh and Aruna Bhargava, Lena Bondue, Dawn Bowlus, Shelly Chenoweth, Janet McKinstry Cort, Erik Dauwen, Clara Del Villar, Christine Chambers Gilfillan, Andrew Hahn, Kathleen Kirkwood, Michael Simmons, Sheena Lindahl, Cynthia Miree, Henry To, Carol Tully, Dilia Wood, and Elizabeth Wright, as well as Peter Cowie, Joseph Dominic, Paul DeF. Hicks, Jr., Ann Mahoney, David Roodberg, Phyllis Ross Schless, and Remi Vermeir, who have all provided countless insights into providing entrepreneurial opportunities to young people.
In addition, I would like to thank my brother, Jack, the best CPA I know, and my father, John, for financing much of NFTE’s early work, and for their continuing love and guidance. Thanks are due to all the other teachers, stu- dents, experts, and friends who were kind enough to look over my work and help me improve it. Finally, I want to thank my mother, Nancy, a wonderful special education instructor who showed me that one great teacher can affect eternity.
Steve Mariotti
To my coauthor Steve Mariotti, who brought hope, opportunity, and change out of adversity to create the Network for Teaching Entrepreneurship and started this journey—many thanks. As Steve noted, the team at Pearson has been wonderful to work with again. Faculty reviewers and faculty mem- bers who have contacted me directly regarding earlier materials are always a valued source of insights.
Most importantly, I appreciate the terrific entrepreneurs who shared their stories with me, including the good, the bad, and the downright ugly! Their interest in sharing their experiences with students and willingness to carve out time to tell their tales demonstrates the kind of energy and enthusiasm we associate with successful entrepreneurs. They have made this endeavor inter- esting and engaging.
On a more personal note, I would like to thank my “family” at Shepherd University for their support and encouragement as I worked on Entrepreneur- ship: Starting and Managing a Small Business, 4e. Special thanks to Jay Azriel, Cynthia deLeon, Gordon DeMeritt, Meg Galligan, Heidi Golding, Terri Hasson, Ann Marie Legreid, Kathy Reid, Cindy Vance, and Hattie Bryant. Finally, to Elise and Spencer Glackin for being the best cheering section a mother could ever have—thanks and love to you both.
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