GoVenture ® Experiencing Micro Business - MarketingII

Transcription

Experiencing
Micro Business
An Illustrated Introduction to
Learning the Basics of Business
Mathew Georghiou
Margaret Williams
GoVenture Experiencing Micro Business
This resource is designed to be a stand-alone learning tool, as well as a supplement for use with
GoVenture software simulations.
Authors: Mathew Georghiou, Margaret Williams.
Cover Design: Wendy McElmon
ISBN 1-894353-10-2
Copyright ©2004, First Edition
by MediaSpark Information Technology Solutions Incorporated (MediaSpark)
All rights reserved. No part of this publication may be reproduced or transmitted in English or in
other languages in any form or by any means, electronic or mechanical, including photocopy,
recording, or any information storage and retrieval system, without permission in writing from the
publisher.
GoVenture and MediaSpark are registered trademarks or trademarks of MediaSpark in Canada,
the United States, and other countries.
DISCLAIMER
GoVenture is a learning simulation. As such, it should not be used to make real-life business
decisions. Similarly, all GoVenture information resources have been designed for learning
purposes only and should not be used to make business, legal, financial, or other decisions.
Consult appropriate professional advisors prior to undertaking any venture.
MediaSpark will not be liable, in any event, for any damages whatsoever (including, without
limitation, damages for loss of business profits, loss of business information, interruption, or
other pecuniary loss) arising out of use or inability to use the materials, even if MediaSpark has
been specifically advised of the possibility of such damages. In no event will MediaSpark’s
liability for any damages ever exceed the cost of the license fees (as outlined by MediaSpark)
paid by you for your right to use this material. MediaSpark makes no representation that this
material is free of defects.
MediaSpark Inc., Publisher
PO Box 975
Sydney, Nova Scotia
Canada
B1P 6J4
www.mediaspark.com
www.goventure.net
USA and Canada Version – First Printing, 2004
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Table of Contents
Contents
1.
Welcome................................................................................ 5
2.
GoVenture Micro Business ..................................................... 6
What is the GoVenture Micro Business Simulation ...................................... 6
What Makes GoVenture Micro Business Unique .......................................... 6
GoVenture for You ................................................................................. 7
What You Need to Play GoVenture Micro Business ...................................... 8
More Information ................................................................................... 8
3.
Being an Entrepreneur........................................................... 9
What Is An Entrepreneur? ....................................................................... 9
Why Be an Entrepreneur? ..................................................................... 10
Who Can Be an Entrepreneur? ............................................................... 10
Success .............................................................................................. 11
Risk and Return ................................................................................... 12
Experience and Decision Making ............................................................ 13
Life Skills Development......................................................................... 13
Stress ................................................................................................ 15
4.
Business Basics ................................................................... 16
Products or Services............................................................................. 16
Markets and Customers ........................................................................ 17
Sales Methods ..................................................................................... 18
5.
Starting Your Business ........................................................ 19
Personal Profile.................................................................................... 19
Type of Business Products..................................................................... 20
Business Plan ...................................................................................... 20
Business Name .................................................................................... 23
Logo Design ........................................................................................ 24
Seed Financing .................................................................................... 25
Balancing Your Business and Personal Lives ............................................ 27
6.
Markets and Schedule.......................................................... 28
Markets .............................................................................................. 28
Business Schedule ............................................................................... 30
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7.
Table of Contents
Products and Inventory ....................................................... 31
Products ............................................................................................. 31
Inventory............................................................................................ 31
Pricing ................................................................................................ 32
Profits ................................................................................................ 34
8.
Hiring and Managing Employees .......................................... 35
Hiring Employees ................................................................................. 35
Managing Employees............................................................................ 36
9.
Attracting Customers and Advertising ................................. 37
Attracting Customers............................................................................ 37
Advertising.......................................................................................... 38
10. Business Reports ................................................................. 43
Accounting .......................................................................................... 43
Financial Statements ............................................................................ 44
Other Management Reports................................................................... 47
11. Evaluating Success .............................................................. 49
Measurements of Business Success ........................................................ 49
Measurements of Personal Success ........................................................ 50
Evaluating the GoVenture Micro Business Experience................................ 51
12. Next Steps ........................................................................... 52
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Welcome
GoVenture®
Experiencing Micro Business
An Illustrated Introduction to
Learning the Basics of Business
1. Welcome
This document is an illustrated introduction to learning the basics of business. It is a
companion piece to MediaSpark’s GoVenture Micro Business simulation.
The purpose of this document is to provide a basic overview to running a micro
business, as well as to explain key topics relating to business — all in a condensed,
easy-to-read format.
The GoVenture Advisor
The GoVenture Advisor — the animated “GO” character — will alert you to features in
the GoVenture software simulation, examples of concepts, and where you will find more
information on a topic in the second section of this book.
GO to the GoVenture software simulation to apply these techniques.
GO here to see an example of a concept discussed in the text.
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GoVenture Micro Business
2. GoVenture Micro Business
What is the GoVenture Micro Business Simulation
Learn the basics of business==in an easy and fun learning simulation!
GoVenture Micro Business is an easy-to-use program that introduces you to the
experience of running your own micro business. It’s the perfect first step for youth or
adults who want to start with the basics of running a very small business. It also offers
the opportunity to apply concepts in other subjects such as mathematics, finance,
career, or general life skills in a fun business setting.
Like a flight simulator for business, GoVenture Micro Business puts you in the role of the
owner of a mobile business cart, where you must decide what products to sell and where
and when to sell them in order to maximize profits. It’s easy-to-use, visual, interactive,
and exciting!
Unlike any book, course or seminar, GoVenture Micro Business enables you to gain
years of experience in minutes! Manage all the key aspects of your own virtual business
– price your products, buy inventory, advertise, review financial statements, hire
employees, manage schedules, and more. Monitor your success by evaluating
profitability and overall business results.
Try your business skills on your own or against your friends and classmates. Gain
practical experience so you have the confidence to explore starting and running your
own small business!
What Makes GoVenture Micro Business Unique
GoVenture simulations enable “learning-by-doing”, an approach that cognitive scientists
have identified as the fastest and most effective way for human beings to learn.
GoVenture simulations immerse the learner in a highly visual and interactive
environment in such rewarding ways that learners feel intellectually and emotionally
engaged in the experience — as if they were personally living it.
GoVenture Micro Business offers several key advantages:
1. A fun and easy-to-use learning experience to learn the basics of running a small
business.
2. An educational tool designed to deliver the entertainment value of a game.
3. Helpful paper-based resources that complement and support the learning
experience.
GoVenture Micro Business is designed as a tool for youth and adults, to be used as a
learning program on its own, or to complement other learning materials, courses,
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programs, and curricula. It can provide a valuable learning opportunity for an individual
or an entire class, within a single hour of use — or over an extended period of time. The
educational foundation and ease of integration in the classroom and curriculum make
GoVenture Micro Business the first choice among learners who are in the early stages of
learning about business, as well as educators and trainers who are providing basic
business training.
GoVenture for You
Education
GoVenture has been designed to be suitable for a variety of instructional approaches
and levels. Whether the need is to create a completely new curriculum or to enhance an
existing one, GoVenture offers a successful and valuable experience for instructors and
learners, from elementary school to adult education.
Business Service Centers
Good business managers and successful owners are not "born" — they must be trained
in a number of business, management, and interpersonal skills. Would-be business
people need to experience the thrills and challenges of running a business before they
do so in the real world. GoVenture provides the experience necessary to gain valuable
knowledge in starting and running a business without the risk of failure. Learn about
accounting, finance, marketing, human resources, inventory management, and a wide
range of life skills.
Banking and Financial Services
Small business owners can pose a significant service challenge to financial institutions.
In many cases, they require a great deal of attention to the point where small business
can be the least profitable segment of the commercial market. Nonetheless, they
constitute a market that cannot be ignored. Financial institutions can provide startup
businesses with a successful and valuable experience by directing them to GoVenture or
by directing their own employees to GoVenture as a customer empathy tool.
Corporate Business Training
Training impacts the success of an organization at all levels. In order for employees to
play a proactive role, they must have a strong understanding of the overall business
model. By playing the role of the CEO or manager, GoVenture enables employees to
gain a high level of understanding and empathy not possible using conventional training
approaches. With a raised level of understanding, a multitude of benefits follows –
increased performance, morale, loyalty, opportunity, and success.
Life Skills Training
GoVenture helps develop a number of necessary skills for success in the fast-paced
Knowledge Economy, including: planning, just-in-time learning, problem solving,
organization, critical thinking, and risk management. GoVenture addresses life skills
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training directly by immersing learners in a simulated world of experience that
transcends the limitations of traditional teaching and learning approaches.
What You Need to Play GoVenture Micro Business
GoVenture Micro Business is designed using proven technologies that will operate on
personal computers, either stand-alone or over the Internet. For specific system
requirements, please refer to the software documentation.
More Information
For more information on GoVenture Micro Business and other simulations, visit the
GoVenture.NETwork Internet portal or contact MediaSpark at:
Sales:
Telephone:
Fax:
Internet:
1-800-331-2282 USA/Canada
902-562-0042
902-562-1252
www.goventure.net
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Being an Entrepreneur
3. Being an Entrepreneur
What Is An
Entrepreneur?
An entrepreneur is
someone who manages,
operates, and assumes
the risks of a business
or enterprise. Most
entrepreneurs own and
run small businesses,
such as a corner store, a
gas station, flower shop,
computer company ...
the possibilities are
endless.
According to the dictionary,
An entrepreneur is a person who organizes, operates, and assumes the risk for
a business venture.
– The American Heritage Dictionary
Entrepreneurship is the process of creating or seizing an opportunity and
pursuing it regardless of the resources currently controlled.
– John Vinturella, The Entrepreneur’s Fieldbook
The words originate from the Old French word “entreprendre” which means literally “to
between-take,” i.e. to take between or to undertake. The word “enterprise” is also
linked to this same French origin.
Regardless of the dictionary used, the term “entrepreneur” is associated with risk,
initiative, management, and an economic activity or business.
Becoming a successful entrepreneur is certainly not easy. You need a good idea,
dedication, sometimes money, and always a great deal of hard work and effort.
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Why Be an Entrepreneur?
There are many
challenges associated
with being an
entrepreneur. For
example, if the
business does not do
as well as you expect,
you are still
responsible for it
because you own it.
You may have to work
many hours each week
managing problems
that arise. You may
not even make enough
money to pay yourself
a salary at times.
Running a business is
a risky proposition
with many advantages
and disadvantages.
Some entrepreneurs
are successful; some
are not. So why would
you want to be an entrepreneur?
There are many reasons why you would want to take on the risk of operating a
business. The most common reasons include:
• being your own boss,
• setting your own work schedule,
• being part of something that you own,
• having control of your destiny,
• and perhaps the possibility of generating enough wealth to gain financial freedom.
There are many other reasons as well.
Who Can Be an Entrepreneur?
Anyone can be an entrepreneur. Neither age,
nor gender, nor race determines who can be an
entrepreneur. Entrepreneurs can be young,
middle-aged, or seniors; men or women.
Entrepreneurs do not look alike nor think alike.
They can be as different as any two individuals
can be. Studies which have tried to come up
Using GoVenture Micro Business,
you will learn more about yourself and
entrepreneurship. You may decide to
become an entrepreneur, or perhaps
not — whatever is best for you.
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with standard profiles of entrepreneurs have generally found more differences than
similarities.
What determines if you can be an entrepreneur is your interest in starting and running a
business and your willingness to take the risk, leadership, and responsibility associated
with running that enterprise.
Being an entrepreneur is not what everyone wants. Only you can decide if being an
entrepreneur is right for you. However, understanding entrepreneurship will help you in
whatever you do.
Success
Measuring Success in
Entrepreneurship
Measuring success is difficult because each of
us defines success differently. The minimum
indicator of success is normally that the
business survives long enough to repay the
owners’ investment — after all who would
start a business, and work hard to have it go
bankrupt and lose everything?
How successful you are as an entrepreneur
depends on your definition of financial
success as well as your needs for personal
fulfillment. For example, you might consider
yourself successful only if your business
brings you a certain amount of financial
wealth, regardless of anything else. Or you
might consider yourself successful if you have
created a company which maintains good jobs
in your community even though it only
generates just enough revenues to get by.
But more frequently success in
entrepreneurship is measured by several
factors, both tangible and intangible. Here
are some common measuring factors:
Tangible Factors
•
•
•
•
•
Profits, Revenue greater than
Expenses
Value of Shareholders’ (Owners’)
Equity
Personal Wealth: Salary and Assets
Growth of the Business
Length of Time in Business
Intangible Factors
•
•
Employee Morale
Customer Satisfaction
The objective of the simulation
is to operate a business successfully
and meet your personal objectives.
GoVenture Micro Business can measure
financial success of the business, but it
cannot measure your level of personal
fulfillment. Instead, it tracks and
reports on important factors so you can
evaluate your own success.
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•
•
•
•
•
Personal Stress Levels
Time Devoted to Family, Friends, and Self
Financial Freedom and Control of Your Own Destiny
Overall Learning Experience
Satisfaction of Being an Entrepreneur
You will apply a different weight to different factors than someone else might, when
determining the success of your own entrepreneurship experience.
Risk and Return
Starting a new business is very risky. You
don’t know how customers will respond
and what your competitors will do when
you plan your new business. Yet there
are constant opportunities for new
business ventures. Some opportunities
allow entrepreneurs to take advantage of
new technologies, like the Internet and
new communications technologies. Other
successful businesses have been founded
on the process of taking used goods and
refurbishing or reforming them into totally
different products.
Operating a business involves taking and
managing risk. It requires decisions to be made on imperfect knowledge. Budgets are
set, employees hired, and inventory purchased all on the expectations of what may
happen. Nothing is certain – now or forever. Even long-established industries have
collapsed due to unpredicted changes in technologies or economic environments.
Thus, a successful entrepreneur must be willing to take risks. An entrepreneur must
also understand how to take acceptable risks, and know when to avoid risk – making all
these decisions on incomplete information.
Entrepreneurs take these calculated risks based on their expectations for potential
returns. All entrepreneurs want some sort of personal return from their efforts, and the
higher the risk taken, the greater the return expected. This is similar to investors who
put their money in companies. The more risk an investor takes when investing in a
company, the more money the investor wants
back. With entrepreneurs, however, the
return is not always monetary. An
entrepreneur’s desired return includes some
encourages you to take action. It
level of tangible wealth along with personal,
challenges you, the would-be
entrepreneur, with all the decisions and
intangible goals. Each entrepreneur may
risks of running a real business, but
have a different desired return.
without the penalty for failure.
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Experience and Decision Making
There are countless books,
magazines, and experts that say
they can lead you to success in
operating a business. However,
it is important to recognize that
there really are no resources
available which entrepreneurs
can use to find the right answer
for every challenge that they will
encounter. While many people
and resources can help guide
entrepreneurs along their
journey, every decision boils
down to one underlying factor:
risk management.
Nearly every decision an
entrepreneur makes has both
positives and negatives in some
way. For example, giving an employee a raise may make that employee happier and
more productive, but at the same time it increases the costs of the business. When
deciding what equipment to purchase, is it better to buy cheaper used equipment which
could be unreliable? or new and more expensive equipment which includes a warranty?
Every decision has an inherent risk. The best entrepreneurs can do is to try to choose
the decision that balances the risk with the benefit. Entrepreneurs can seek advice from
many sources, but it is their research, planning and experience that ultimately assure
the best decision is made.
Entrepreneurship truly is experience-based learning.
Life Skills Development
In addition to developing business and entrepreneurship skills, a number of life skills are
considered critical for success in today’s environment. Everyone must learn these skills.
They include the following:
Critical Thinking and Problem Solving
GoVenture Micro Business provides you with a
series of decisions that must be made. There are
many possible answers: some result in better
outcomes than others. You will continue to make
decisions, attempting to reach the best possible
solution. The simulation favors individuals who
make their decisions based on previous experience
in the activity.
makes you deal with the consequences
of your decisions, both good and bad,
providing feedback critical for
experience-based learning.
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Risk Taking
No one has perfect knowledge about what will happen in the future. Risk taking is a
critical element in running any business, and especially businesses in the new economy.
Leadership
Gathering information, making plans, making decisions, and taking responsibility for
your decisions are skills that are required for success.
Team Building
To be successful, group members must learn how to reconcile differences of opinion,
negotiate, and compromise for the good of the business.
Planning
Careful planning has always been critical to success. Those who research their market
and develop a comprehensive strategy will be far more successful than those who make
their decisions without a plan.
Organization
Business requires you to make decisions in a timely manner, following through on a
plan. You must review and act on important information.
Decision Making
Some decisions are better than others, but decisions must be made. Those who find the
greatest success will be those who carefully plan, analyze new data, and make decisions
accordingly.
Creative Thinking
You must think creatively to develop successful solutions to a variety of problems.
same solution will not work for every problem.
Self-Esteem
It is said that “Everyone likes a winner.” Why?
Because a winner is successful, and success
builds self-esteem and confidence.
The
offers a platform to experience
business. Life Skills that are normally
developed on-the-job can be gained
from the simulation.
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Stress
Stress is a physical, chemical, or emotional factor
that causes physical or mental tension.
We all have a variety of events that create stress in
our lives. In addition, events that trigger stress
may be different for each of us. For example, some
people feel stress when they find themselves in a
traffic jam, while others do not. People who do not
have enough money to pay their bills feel stress
from lack of money. Wealthy people who can pay
their bills may feel stress from the fear of losing
their money or having their expensive possessions
stolen. Each person deals with stress differently. If
stress is not properly controlled, it can cause health
problems.
Entrepreneurs, particularly in the early stages of growing a business, can be exposed to
tremendous pressures and stress-inducing events. Since entrepreneurs undertake new
and risky ventures while balancing business and personal lives, they must be careful to
manage the stress that can accumulate.
Stress can be reduced through a number of ways, including:
•
•
•
•
•
•
Increasing Personal Time
Exercising
Deep Breathing
Reducing Work Hours
Sleeping a Few More Hours
Taking a Vacation
By keeping stress at a low level, we increase our productivity, clarity of thinking, health,
and happiness of ourselves and of those around us.
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Business Basics
4. Business Basics
You deal with a variety of businesses every day, though you may not analyze them.
There are a few basics which can be applied across all businesses. Think in terms of the
following three questions:
1. Does the business sell products or services?
2. Who buys the business’ products or services?
3. How does the business sell its products or services?
The answers to these questions
will help you understand the
basic environment of any
business.
Products or Services
Products
Every company sells something.
Some sell physical objects –
products. In the digital world,
some of these “physical”
products are not always
something we can touch.
Some companies manufacture the products they sell. Some of these products are
finished goods, and some are components or materials sold to another manufacturer.
Other companies resell goods made by someone else. These could be retailers, selling
goods to the end user, or distributors, “middle men” buying and selling goods on a
discounted wholesale basis to other
companies who resell the goods.
Services
GoVenture Micro Business is
structured so that all businesses sell
products from a mobile cart.
Other businesses sell services, not goods.
Services include professionals and trades
people, like lawyers, accountants,
electricians, plumbers, and many more who sell their expertise. Airlines, car rental
companies, shipping companies, and delivery services also sell services. Other types of
service companies include hair salons, health clubs, spas, golf courses, and many more.
Because service companies do not sell physical goods, there are rarely distributors for
services. The service companies almost always sell their services directly to the users.
16
Business Basics
17
Markets and Customers
Marketing is sometimes described as:
Selling the right product (or service)
. . . to the right people
. . . at the right price
. . . at the right place
. . . with the right promotion
. . . at the right time.
Part of being successful means that you must learn about which people or organizations
might buy your product or service, and why. This information will help you refine the
product attributes to suit potential customers, price appropriately, sell your products in
the best places, select appropriate advertising, and bring your products to the market at
the right time.
For example, how successful do you think you would be if you were trying to sell:
Christmas Trees ……. to Buddhist monks in India …… for $500 each ……..
delivered to Los Angeles …… advertised in Italian ….. in June?
This obviously won’t work at all — everything is wrong with this marketing approach!
Market (People)
A market is all the people who might buy your product (or service) either from you or
from a competitor. A market can be broken down into smaller groups of similar
potential buyers, called market segments. Market segments might be set up by
geographic region, by age, gender, economic status, language, family status, or many
other descriptive groupings which will help you develop advertising and sales programs
to reach these various groups of potential customers.
Customer Types
A market doesn’t buy your products — people, your customers, do. The most basic
types of potential customers and customers are broken down into:
•
Individuals: People who buy goods and services for themselves or for a friend
or family member. These types of customers
are called consumers or retail customers.
•
Businesses: People who buy goods and
services for use in an organization, either to
make their own products or to help their
business operate. These organizations include
companies, governments, schools, hospitals,
GoVenture Micro Business is
structured so that your customers are
individuals of varying ages, genders,
family status, and wealth. The exact
composition of these people can vary in
each of the five different market areas.
Business Basics
and other organizations. These are business customers, and they have different
reasons for buying than individual users, and often buy in large quantities.
Sales Methods
There are three basic ways to sell
your products or services:
1. Direct Sales – the customer
buys your product or service
from your company:
a. Selling in a retail
store.
b. Selling with a company
sales force or
telemarketing group.
c. Selling through your
own mail order catalog or Internet website.
2. Distribution Channels – the customer buys your product from another business,
your company receives its money from selling to “middlemen.”
a. Selling wholesale to distributors.
b. Selling through outside sales representatives and partner companies.
3. Combination Methods – Using both direct sales and distribution channels.
Once you understand where your potential
customers are located and how they buy, then
selecting the right sales methods will be more
obvious. For instance:
•
•
•
Do people order ice cream from a mail order
catalog?
Would people buy a book in a store? over the
Internet? or from both?
Would an airline buy a new plane in a retail store?
In GoVenture Micro Business,
all of your sales will be made directly to
your customers from your mobile cart
business.
18
Starting Your Business
5. Starting Your Business
Starting and operating a business requires you to make a variety of important decisions,
to conduct research, to complete application forms, and so on. Remember that
everything affects the success of the business in some way or another.
Personal Profile
When you first start thinking about owning and operating your
own business, you should first consider how this venture is
going to impact your personal life. Entrepreneurs should enter
into business with the knowledge that it requires a significant
personal commitment, which may impact strongly on their
emotional and physical health, as well as on other friends and
family members.
If you are seriously thinking about being an entrepreneur, you
should consider some of the following questions:
•
•
•
•
•
•
•
•
Why do you want to start your own business? What
are your goals and objectives?
Do you think you would like being your own boss,
rather than working for somebody else?
Do you have the self-discipline to get things done when
no one else is driving you to do them?
Are you prepared to work the long hours necessary?
Are you prepared to sacrifice income and personal time in the early years needed
to start the business? Can you afford to pay your living expenses if you have
little or no income for a long period of time?
Would you rather start a business with the hope of gaining financial freedom,
with no guarantee of this happening? Or, would you prefer the security of a
steady paycheck while working for somebody else?
Have you considered how this will impact your family? Does your family know
what sort of demands will be made on your time? Your commitments to your
family will affect how much time you can spend at your business.
Do you want to be involved in your children’s activities? Are you prepared to
sacrifice this commitment for the success of your business?
Knowing yourself, your strengths, weaknesses,
expectations, and the demands of being an
entrepreneur will help you to make the best
decisions for your future.
GoVenture Micro Business lets
you define your main Personal
Objectives. This will help you learn
more about yourself and measure your
success in attaining these objectives
19
Type of Business Products
One of the first and most important decisions
when becoming an entrepreneur is to decide the
type of business that you would like to run. This
choice should be based on your personality and
interests, plus the opportunities you see for this
type of
enterprise.
In GoVenture Micro Business, all
businesses are mobile cart operations,
and you choose from a list of several
different types of business products
each time you start a new simulation.
Operating a business that offers good opportunity,
but which you have little interest in may seem fine
at the start. But, it is important to consider the
number of hours that you will be spending on the
business itself. Working on something that you
have no interest in can be very difficult, but
selecting a type of business that suits your
personality will make the many work hours that
are necessary much more tolerable, and in many
cases, even fun and fulfilling.
Business Plan
Once you decide on the type of business to run, you must
begin devising the plan to realize your dream. The results
of this planning process form a document called a
Business Plan.
A Business Plan is a critical document for every business –
new or well established.
What is a Business Plan?
A Business Plan is like a road map. It describes where the
company is now, and where you want to go. It shows the road the company will take to
achieve these goals, and what the company will look like when it arrives at its
destination.
A Business Plan can be a fancy printed booklet
with pictures and glossy paper, or it can be a
typed document. The most important part of a
Business Plan is not what kind of paper you
use, but what information is inside it.
GoVenture Micro Business has
an optional Business Plan feature which
helps you write your own plan by
setting up a template and providing
help on each section. However, your
Business Plan does not impact how the
simulation runs.
20
Why Is a Business Plan Important?
There are three main reasons to have a
Business Plan for your company:
1. Planning Your Business Strategy
“It doesn’t matter what road you take,
if you do not know where you are going!”
Planning helps you go through a
logical thought process of all aspects
of where you want your business to
go, and how you will get there. You
look at who would buy your products
or services. You calculate how much
you think things will cost and how
much money you will make. You think of possible alternative strategies and how
you might respond to competition. And, you think of where your initial success
might lead you in the future.
Completing a thorough planning process will greatly improve your company’s
ability to meet its goals, and it will help you make decisions along the way to
keep your company on track.
2. Seeking Loans, Investors, and Advisors
“Please give me a copy of your Business Plan.”
A Business Plan is what banks will ask for when you need to borrow money. If
you are looking for partners or investors to put money into your company, they
will also ask for a Business Plan. Even when you are going to your advisors, they
will ask you what your plans are, because they need to know your plans in order
to give you the best advice. You may be amazed at the number of key people
who will want to see your Business Plan.
3. Measuring Your Success
“How is it going?”
The final use for a Business Plan is to measure how well you are doing. Your
Business Plan sets out where you expected to go. As you move along the way,
you can see how accurate your plan is. It is not critical that you be exactly
where you said you would be, but it is important to understand why your results
differ from your plan.
You might have done a lot better than you expected. If so, why? What does this
mean for your next Business Plan? And if you did not do as well as you thought
you would, what happened? How can you improve in the future?
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What Period of Time Does a Business Plan Cover?
A Business Plan should cover at least a year in detail. Some plans may extend out three
to five years. You should be thinking in general terms of the future, but focus on what
you can complete in a year.
How Do You Write a Business Plan?
A Business Plan does not have to be a book! Each plan will vary in length, depending on
the needs of each business. There are some slightly different formats which can be
used, but in general, all Business Plans contain the following sections:
Opportunity
What is the opportunity that will allow your company to succeed? Is there a lot
of competition for your company? Do you have superior products or services?
Do you have a totally new product or service? Does your company have special
experience or expertise? Are your products going to be less expensive than the
competition? Is the demand for your product growing or shrinking? These are
the types of questions entrepreneurs should answer when considering the
opportunities for their
company.
Market
What type of industry will you
be in? What is your target
market? You could break this
down in various ways, for
example, by age, gender,
marital status, geography, or
income. Why will people buy
your product? What is the
competition like? What
advantages would you have
over the competition? What
disadvantages would you have?
Products and Services
What are you going to sell? How are you going to sell these products? How do
you plan to advertise your products? If you have a great product which people
do not know about, then you do not have great chances for success.
Company
Who is going to manage your company? Who are your advisors: your lawyer and
accountant for example? Do you have a board of directors? The quality of these
people can be crucial for your success when starting a new business. You must
also decide what legal structure you want for your business. The three types are
sole proprietorship, partnership, and corporation. The advantages and
disadvantages of each type of ownership are given in the section on legal
structure.
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Financial Projections
What types of sales do you expect? What do you think your expenses will be
like? How long do you think it will be before you start making a profit? Most
businesses will lose money when first starting up.
Executive Summary
This is the first section of every business plan, but it should be written last. The
Executive Summary should include a summary of all key information contained
within the plan. Care must be taken in writing this summary because in many
cases, it is here that most readers will decide whether or not the plan may be of
interest to them. The Executive Summary should be kept as brief as possible –
generally these range from one to three pages in length.
Business Name
Every business needs a name. The name
of your business can give a significant
amount of information and emotion about
your business. The name is how the
business will be recognized and
remembered by your potential customers.
A business name can be long (“John’s
Super Wonderful Hotdogz”) or short
(“Dogz”), descriptive of what your
business does (“Just Shoes”), or not
(“Jane’s”). It is up to you. If you will be doing business in a multicultural region, it is
also important to keep in mind that the name you choose should translate well into
other languages.
Once you decide on a name for your business, you must conduct a search to be sure
that the name is not already legally registered. You must conduct this search because
no two businesses that offer similar wares and/or services can have the same or very
similar names. There are organizations that conduct name searches for a fee. The cost
of a name search varies depending on the extent of the search that you require. As
there are many businesses around, it is not unusual to find that the name you want has
already been registered by someone else. Consequently, you should always try to have
at least two or three of your favorite choices ready.
What would happen if your name was taken but
you used it anyway? When the company who
has the name legally registered finds out about
your business, they can sue you and force you
to change the name of your business. Not only
would this cost you money for the legal battle,
but changing your name means losing all of the
goodwill and name recognition that you may
have gained to date.
you name your own business. You also
can select a logo from a series of predesigned graphics.
Similarly, you would not want someone else using the same or similar name as your
business, because they would freely benefit from your goodwill and name recognition.
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As well, “bad” reputations of companies with similar names can be confused with your
company.
A business name can also be legally registered as a trademark, which can give it even
more protection from others trying to use the same or similar name.
Logo Design
A logo is a unique visual identifier that distinguishes your
business. Similar to a business name, a logo can impart a
significant amount of information and emotion about your
business, and it is how it will be recognized and remembered
by your potential customers. A logo can become so well
known that people can instantly identify the company it
belongs to. For example, the Nike swoosh or McDonald’s
golden arches.
Your logo should be used on all of your company
communication materials, including letterhead, business
cards, and on your storefront. Having a consistent design
with all of your materials is strongly suggested and helps
build what is called your “corporate identity.”
A logo normally includes text (the name of the business) and
a graphic. Sometimes, a logo does not include a graphic
image; instead, the text is stylized which is sometimes called
a “wordmark.” And sometimes when the graphic image
becomes well known, the text name of the business is
removed and the graphic is used on its own.
A good logo design:
• Imparts a single, strong message that identifies the business, and/or its products
and services.
• Is a simple design, not an overly complex one.
• Uses the appropriate colors. Almost every color has emotional and cultural
significance and should be chosen carefully.
• Has a limited number of different colors — the fewer, the better. Otherwise it
can be difficult and expensive to reproduce.
• Reproduces well in black and white, as well as in color.
• Is scalable. It should look good on a large poster or on a small business card.
Normally, most businesses will hire a graphic designer to assist with the design of their
logo and corporate identity.
It is also important to note that, similar to a business name, you cannot legally use a
logo that is similar to one legally trademarked by an existing business.
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Seed Financing
When you decide to start a new business, or purchase an existing one, you must also
decide on how to finance this venture. Most funding will come from one of the following
sources, or some combination
thereof:
Love Money
Love Money is money invested
in your business by yourself,
friends, or relatives. They tend
to invest in your business
because they know and “love”
you, as opposed to formal
investors who are more focused
on the business opportunity.
Consequently, Love Money is
usually easier to obtain and
generally has informal
expectations of repayment.
Unless you have a wealthy
friend or relative, the
availability of Love Money is usually in small amounts. Entrepreneurs are also normally
expected to invest some of their own Love Money in the business to show they believe
in the potential success of the business.
Since Love Money comes from family and close friends, be careful to avoid personal
friction in the future when it comes time to repay them.
Windfall
Windfall is money that you receive unexpectedly. For example, winnings from a lottery,
an inheritance, an insurance settlement, or maybe even a large bonus from your current
employer. The benefit of a Windfall is that you do not have to pay the money back, but
the drawback is that you may never get one!
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Bank Loans
Bank Loans are commonly used to finance a
business. There are different types of Bank
Loans, and all involve paying back the
principal, plus interest over a given amount
of time. Normally, loans require payments
on the principal and interest to begin right
away (i.e. as soon as you get the loan), and
payments are made monthly. This can be
difficult when you first start a business and
your cash flow is not strong.
Banks prefer to reduce the risk of their
loans by placing liens on assets of the
company and/or requiring the entrepreneur
to sign personal guarantees for repayment,
even if the business is incorporated.
Equity
Equity financing is also a very common type of financing, but it is almost always
restricted to corporations, the most common type of legally structured businesses,
because of taxation and legal issues.
With Equity financing, the entrepreneur receives money from an investor in return for
part ownership in the business. There are many types of equity financing
arrangements, but the most common includes the issuance of common stock, or shares,
and does not require any immediate repayment. It is important to note that whoever
owns more than 50% of a company’s stock has complete control over that company. If
you own less than 50%, you could even be fired!
Equity investment offers many advantages. Two key advantages are that repayment is
not necessary and that additional people now have a financial interest in the success of
your business.
The drawbacks are that you may be required to provide
periodic reports to your investors, and some investors
may even want to participate in daily decisions. And
requires
you
to invest $1,000 of your
while investors may not require immediate repayment,
own “virtual” savings. You then choose
they do expect to make a profit from their investment
whether to use debt (a loan) or equity
someday. This means that an appropriate “exit
to pay the rest of your startup costs.
strategy” must be in place that demonstrates how the
investor will eventually make a return on their
investment. An Exit Strategy may include a management buyout where you buy back
the shares at a set price; an acquisition where your company is bought by another
company; or eventually selling your company’s stock on a public stock exchange.
Balancing Your Business and Personal Lives
Being an entrepreneur is more than just running a business. The business becomes part
of your life and will affect you in many ways.
Since you are the boss, you get to set your own work hours and schedule, but at the
same time, the success or failure of your business is ultimately your responsibility.
Some entrepreneurs find themselves spending so many hours on their business that
they have little time for leisure, friends, or family. This can create a very stressful and
unhealthy situation - for the entrepreneur, for his or her family and friends, and the
overall business.
Many entrepreneurs find that when
they are just starting their business,
they have to spend many hours
working. Even so, it is important to
set aside some personal time to reenergize and clear the mind.
Eventually, with proper planning,
and by hiring good employees and
training them well, the business will
run efficiently, without need for you
to spend so many hours at work.
This means that you will have more
time to do the things you always
wanted to do.
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Markets and Schedule
6. Markets and Schedule
Markets
Business Location
Selecting an appropriate location for a business
can be critical, especially for a retail sales
business. It is important to recognize, however,
that the best location will vary depending on
your type of business and your market.
For example, a manufacturing, research, or
similar business that does not deal directly with
consumers may not need to be located in a high
traffic area. A location that provides lower rent
and taxes, easy commute access for employees,
and less expensive shipping and receiving,
would be more suitable than a downtown area.
On the other hand, with a business that deals directly with consumers, such as a
restaurant or retail store, being located in a high traffic area can be very advantageous.
You must strive to select a location that is most
suitable for your business. When you operate a
consumer-based business, you must have
knowledge of the characteristics of the
consumers who will frequent the location, be
familiar with the traffic patterns of the area, and
understand how this might all be affected by the
weather.
Traffic Patterns
Knowing when most customers will frequent your
business, as well as when traffic will be light, helps
you plan better. For example, you might decide to
locate a restaurant in a residential area because of all
the people living there. But, most people will
commute from home to work in another area of town.
Since most consumers would not be near your location
during the day, your prime traffic time would be
evenings and weekends. On the other hand, if you
were located in the business district, most traffic
would likely be during normal working hours (9AM –
5PM). Recognizing such patterns helps you set the
appropriate hours of operation as well as the
scheduling of employees.
you select a new location every day for
your mobile cart business from one of
five market locations.
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Customer Characteristics
Customers base their buying decisions on four factors: Price, Quality, Brand
Recognition, and Brand Loyalty. For example, some customers are only concerned
about the cost and so will always purchase the least expensive item – Price Concern is
the greatest factor in this case. Others are more concerned about quality and may be
willing to pay a higher price for higher quality – in this case, Quality Concern is higher
than Price Concern. Similarly, some customers are more likely to purchase a product if
it is a brand name that they recognize (Brand Recognition Concern).
Brand Loyalty means that these customers have had successful experiences with a
particular brand. They are most comfortable when purchasing this identical brand. And
they will not usually consider others, even if the competitive products are less
expensive, or of better quality.
Each customer ties a different weight to each of these factors. It is important to
recognize that customers in similar locations have similar buying habits. For example,
near a sports arena most people are out to enjoy themselves and likely will have some
spending money, so they are usually less concerned about prices than with the other
three factors. Customers near a factory, however, are likely most concerned about
prices because they are likely simply looking for something quick and inexpensive.
When your customer is buying for a business, and not an individual consumer, the
weighting factors may be again different.
Weather
Weather is another factor that needs to be
considered when selecting a location because
it will affect the traffic patterns of the
location, as well as the consumer
characteristics. For example, on a cold or
rainy day, most people would likely prefer to
shop inside, such as in a mall location, rather
than in an outdoor shopping district. On very
cold, rainy, or stormy days, many people
decide not to shop at all, so traffic will be light
on such days.
By understanding all of these factors and how
they affect your business, you will be able to
choose the best location for your business and
properly plan your business market strategy.
traffic patterns, customer characteristics, and weather all affect the
markets in each area. Special events
also impact traffic patterns.
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Business Schedule
Selecting the right business location
must also be matched with the
appropriate hours of operation for
your markets. To set your schedule,
you need to understand the traffic
patterns in your business location, and
how they change in different times of
day, days of week, weather conditions,
and special events. This will help you
identify when the most number of
people will be in your area.
But just scheduling to peak traffic does not give you the perfect solution, because the
time of day may also affect what people buy. For instance in the mornings in a business
district many people might buy a cup of coffee on their way to work, but few would buy
an ice cream cone at 8:00 in the morning.
Understanding the traffic and buying patterns
in each business location will help you
schedule business hours to take advantage of
the peak traffic and buying times. It will also
help you to know when to close your business
so that these times coincide with the times of
day and days of week when there are few or
no potential customers willing to buy your
products in a given location.
you schedule your hours of operation
each day.
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Products and Inventory
7. Products and Inventory
Products
The items that a business sells are
called products. The term “products”
can also include services, as well as
physical products. A person who buys a
product is called a customer. Usually, a
business makes its money by adding
value to an item or a group of items in
order to make them into a product.
For example, a chair manufacturer uses
wood, upholstery, glue, and screws to
make its product – a chair. A restaurant
uses various food ingredients to create a
meal. The resulting product is more
valuable than the items used to create
it, consequently enabling such
businesses to make their own profits.
Other businesses, such as retail sporting goods stores and clothing stores, do not create
new products, but rather make existing products more easily available to the customer.
They do so by using display racks, shelving, advertising, location, and personal service
to make it easier and more compelling for a customer to make such a purchase. Retail
companies make their profits by marking-up the price of the product they sell above the
original cost they paid the manufacturer.
Service businesses, on the other hand, usually
do not have tangible products. Instead, their
services are their products. For example, a
dentist sells his dental services – cleaning teeth
and filling cavities would be considered
services.
you select from a list of different types
of product types for your mobile cart.
Each business option has three
products.
Inventory
Every business that sells products (and not services) has what is called inventory.
Inventory includes all the items (raw materials and components) that make up a
product, or the product itself (finished goods). For example, hamburger patties,
tomatoes, and lettuce would be considered as part of the inventory in a restaurant.
Baseballs, gloves, and skis are the inventory in a sporting goods store. Wood,
upholstery, glue, screws, and chairs would be
the inventory of a chair manufacturer.
In order to be able to make and sell a product,
a business must have all inventory items in
stock that are needed to make that product.
For example, a hotdog is a product. A hotdog
is made up of the following inventory items: a
you order inventory daily. Each
product may have one or more types of
inventory required. When extra
inventory storage space is needed, you
can rent a trailer for your mobile cart.
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bun, a hotdog wiener, and condiments. In order to be able to sell a hotdog, you must
have all of these inventory items in stock.
Pricing
Once you decide what products your business will
sell, you must decide the price of each product.
This price is how much money you ask someone
to pay you for that product. There are two basic
approaches for setting prices: Cost Plus Pricing
and Market Pricing.
you set your prices and can change
them daily, if needed. You can also see
the average price that your competitors
are charging.
Cost Plus Pricing
Like its name, Cost Plus Pricing means you add up all the costs to make
and sell the product, and then you add an extra “plus” for profit to the
company. You should also include the cost for assembling, preparing,
storing, and delivering that product to the customer. For example, if a
hotdog wiener, bun, and condiments cost you a total of $1.35 to purchase
from your supplier, then you should set the price of your hotdog higher
than $1.35 — otherwise, you will be losing money on every sale.
Example
COST PLUS PRICING
Hot Dogs
- Hot dog wiener
- Bun
- Mustard & condiments
Cost of Goods Sold
$1.00
0.25
0.10
$1.35
PLUS, Average cost of other
expenses, per hot dog sold
1.01
(advertising, wages, equipment,
transportation, insurance, permits, etc.) _____
Total Average Cost
PLUS, 20% Profit
Price of a Hot Dog
per hot dog
75%
of Cost of
Goods Sold
$2.36
0.47
$2.83
• To price your products you must know how much they cost you, on
average. Finding the average cost of inventory items is generally not
difficult. Figuring out what the average cost of all your other
expenses on a “per hot dog” basis is impossible because you don’t
know how many hot dogs you will actually sell. Take a guess at how
many hotdogs you will sell and how much, on average, these costs
will be for each hot dog sold, even if it is a rough guess. Or, use your
business plan to help you calculate the percent of these other
expenses to your inventory costs.
• Once you’ve estimated the total cost of your product, add a percent or
an amount for profit to get the price at which you will sell your product.
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The problem with Cost Plus Pricing is that sometimes you end up with a price for
your products which is higher than your competitors.
Market Pricing
With Market Pricing, you price your products according to what you think people
are willing to pay.
Market Pricing is common in today’s selling environment. However, you need to
make a profit on the products you sell. The price of your product should be
higher than the cost of what you paid for the inventory items that you purchased
to make the product. During sales or inventory clearances you may drop prices
to their cost or even below, if it is important to sell the old inventory in a hurry.
But, you lose money when you sell below your costs.
Example
M ARKET PRICING
Hot Dogs
1. Compute your cost per hotdog.
2. Compare prices offered by competitors.
3. Set your product’s price.
Your Cost =
$2.36 total average cost (see Cost Plus Pricing)
Prices: Competitor A
$2.50
Your Price =
$2.55
Competitor B
$2.55
Competitor C
$2.70
(Profit = $0.19)
• Even with Market Pricing, you must start with understanding what it truly costs you to
sell a product. Then compare this price with your competition’s prices.
• You may elect to sell higher, lower, similar, or close to your competitors’ price.
Whatever price you select, you must use a good strategy, understand what your
customers want, and how much they will pay.
• Even using a Market Pricing approach, you must always keep your costs in mind.
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Profits
In order for your business to survive, it must
be profitable in the long run — in other
words, it must make more money than it
costs to operate. Otherwise the business will
eventually go bankrupt. On any given day
you may not make a profit, but over time,
your business needs to take in enough
money to cover its costs and pay you a profit.
The key to success is selling as many of your
products as possible at a profit, and
generating enough business profit to meet
your personal goals and to assure the
continued operations of the company.
Profits may come from different strategies. You might set a low price with very little
profit on each item, but make a lot of sales, maximizing profits through the number of
sales (companies like Wal-Mart do this). Or, you might set a price that will give you
higher profit on each sale, knowing you will lose a few customers to your lower priced
competitors (companies like Rolex Watch do this). Entrepreneurs have to make these
strategic decisions for their businesses.
There are certainly measures other than profit for determining success in a business.
But, a business that is not profitable will eventually be shut down. So, without at least a
little profit, you will not be able to achieve the other goals you may have.
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Hiring and Managing Employees
8. Hiring and Managing Employees
An employee is someone who
does work in exchange for
some form of compensation
such as salary or wages. When
you first start your business,
except for yourself (and
possibly your partners, if you
have any) you do not have any
employees. In order to serve
your customers, you must be
at your business every hour it
is open. You usually will hire
one or more employees to help
you operate the business. In
return for their assistance, you
pay them a specified amount of
money – called a wage or
salary.
The more customers that your
business attracts, the more salespeople that are needed to serve those customers. The
maximum number of customers you can serve during a given hour depends primarily on
the number of people who can physically get to your business, and the number of
employees selling during the hour.
Hiring Employees
If you have enough money, you can choose to hire employees at any time. When you
are ready to hire an employee, write an appropriate job description outlining the details
of the job and the skills required to do it. It is advisable to advertise the job opportunity
that you have available. By advertising the job opportunity, you give more people the
chance to submit their resume, and so you get a greater choice of candidates for the
job.
Choosing the right employee for the job is very important for your business and should
be done with great care. Once you review all of the resumes, highlight the most
promising ones and contact those individuals to come meet you for an interview.
Prepare a list of questions that will help you find the most suitable person for the job. It
is also advisable to contact references before making a hiring decision. Take care,
however, that you only ask appropriate questions that do not violate employment
discrimination rules and regulations — check with your local government agency for
details.
Once you decide on the best candidate for the job, you then make that person a job
offer, outlining hours of work required, salary, benefits, and responsibilities. The
candidate may then accept or reject your offer. If your offer is accepted, he or she
becomes an employee of your company.
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Example
Hiring and Managing Employees
THE COST OF EMPLOYEES
Things to Consider:
1. What is the legal minimum wage?
2. What are the candidate’s expected wages and benefits?
3. Once the new employee is trained, will increased sales pay for
the cost of that employee?
4. What is the cost of hiring the wrong person?
• By law you have to pay a minimum wage. But different candidates for a position will have
different wage expectations. Some want more money than others, and most will turn down an
offer that is below their expectations. Hiring the person with the lowest wage expectation may
not save you money, because this person may not be as productive in the job or might need
more training. There is no perfect answer — you must use your judgment, balancing the
potential benefit from hiring a person against the costs.
• New employees need training and may not be instantly fully productive. But once a training
period has passed, will this person help your business make enough new sales to cover the
cost of the extra wages? If not, then you should reconsider the job or the person filling it.
• All costs are not paid in cash. What is the cost of an employee who is so rude to customers
that they go and buy from your competitor? What is the cost of a non-productive employee who
cannot serve all the customers who want to buy, so you lose sales? Monitor your employees,
their productivity, their customer service, and their morale — productive, happy employees can
help you grow your business.
Managing Employees
Once you have one or more employees, you must be prepared to manage them
properly. This means providing appropriate training for the job, and ongoing direction.
In addition, good employers always stay aware of the morale of their employees. By
maintaining a good level of morale, employees are more productive, efficient, loyal,
better with customers, and so on. In other words, they do their job better,
consequently making your business more competitive (not to mention, a better place to
work!).
Employee morale can be improved in a number
of ways, from as simple as providing frequent
praise for a job well done, to more tangible
methods such as salary increases. Bonuses
and employee incentive programs are also a
common approach used to motivate and
reward employees.
A business that treats its employees well is
always more likely to succeed in the long term
than one that does not.
In GoVenture Micro Business, you
can choose to hire up to three people
each day. Potential employees have a
number of personal characteristics that
may affect their productivity, customer
service, reliability, and morale. Review
their backgrounds carefully!
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Attracting Customers and Advertising
9. Attracting Customers and Advertising
Attracting Customers
A person who buys your products is considered
a customer. Those who may buy a product are
considered potential customers. Usually, the
more potential customers a business can
attract, the more products it will sell. There are
always exceptions, however. For example, a
manufacturing company may sell all of its
products to only a very few customers. But
generally, more customers and potential
customers mean more sales.
The number of customers a business attracts
depends strongly on the following factors:
Market and Business Location
If your business is located in a high traffic area, there is a greater chance that you can
attract more customers than a business located in a low traffic area. In addition, the
location of a business may establish what the general types of customers who frequent
this area, their buying habits, and their price/quality expectations. For example, in an
upper-scale neighborhood, customers may be more concerned about quality rather than
price, while in less affluent areas, price may be more important.
Weather
Most people like being out on nice days, but not on stormy ones.
Time-of-Day and Day-of-the-Week
Most people work and play during the day, and sleep at night. In some places,
businesses do not open on Saturdays and Sundays. Careful planning is necessary to set
the most optimized work hours for your business and its employees.
Product Price, Quality, and Attractiveness
If a potential customer can conveniently find a business that offers a similar product at
the same or better quality and at a lower price, then they are likely to buy from that
business. The quality of the product and the attractiveness in how it is presented also
affects customers’ willingness to buy. Your challenge is to sell the right quality products
at the right price for your average customer in a given location. If someone has to
travel far to buy from your competitors, they may accept a different standard of product
price, quality and attractiveness — but usually only within a reasonable difference from
their normal preferences.
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Brand Recognition
The more people who know about your business, the more likely they are to visit it,
provided you have what they want. Brand Recognition is increased the longer a
company is in business, and can also be increased by advertising. Advertising results
are difficult to measure, so you must carefully budget how much money you spend on
advertising and the type of advertising that works best for your business (TV, radio,
newspaper, print, etc.).
Brand Loyalty
If someone purchases a product from you and
is very satisfied with the purchase, then they
are very likely to return and buy from you
again in the future. Consistently satisfying
customers by providing successful experiences
is the key to improving Brand Loyalty.
all of these factors influence the
simulation. In some instances, the real
life consequences are exaggerated to
provide more obvious feedback for you.
Competition
In business, there is usually more than one company that offers similar products or
services. Customers have a choice and every business must demonstrate why it is
unique in some way.
Advertising
Advertising is the action of calling something to
the attention of the public, usually for the
purpose of trying to sell a product or service. It
is a method to try to attract more customers to
your business.
In general, each type of advertising has different
uses and benefits. Just about every type of
advertising could be good for your company, so
you are going to have to figure out how much
money is worth spending on advertising and
which types of advertising will be best for your
business.
Advertising Plan
When planning advertising, you should follow a few simple steps:
1. First, Set Advertising Objectives: What are your communication objectives?
What are your sales goals?
2. Second, Establish a Budget: You may decide to base the budget on what you
can afford, or on a percent of sales, or on how much your competitors spend.
38
3. Next, select the Message and the Media. This includes the reach, frequency,
media type, and timing.
4. Finally, make sure you set up an Evaluation Process to estimate the impact of
your advertising against your objectives.
You may have a different purpose each time you advertise — from making people aware
of your company, to alerting them of a time-limited sale. But overall, your advertising
campaigns must ultimately be designed to get people buying your products. Otherwise,
why bother?
There are a few things you should keep in mind when planning your advertising:
Message
1. A message must be received to
be understood. Advertising is a type
of communication. That means it is
two-way: You send a message, and
your targeted customers should receive
your message. Place your
advertisements when and where they
will receive them. If your customers
are people who normally watch late
night TV and sleep in on weekends, do
not run your radio commercials early
Saturday morning!
2. A message must be remembered
to be acted upon.
Advertising must be remembered to be
effective. It is great if your customers
hear about a sale, but if they forget the
name of the store or the date of the
sale, then you have wasted your
money. Make your message clear and
simple. Repeat the important details to
help people RE-MEM-BER.
Vary your advertising. If possible vary the type of advertising, because human memory
is always enhanced when you hit several senses - reading it, seeing it, hearing it. And
people get bored, and stop “receiving” if your ads are the exact same thing over and
over again.
Costs and Value
Lastly, advertising is expensive. And, it is extremely difficult to track the exact success
of any one advertisement. You will probably be able to tell when your advertising
doesn’t work. But there will never be perfect knowledge of how effective an
advertisement is. This means you will have to make educated guesses about how much
money to spend on advertising, without ever knowing the specific results. This is all
part of managing business risk.
39
Example
THE CHALLENGE OF ANALYZING THE VALUE OF ADVERTISING
Week Advertising Cost
Sales
1
2
3
4
Campaign #1
$0
$300
$300
$300
$800
$1,100
$1,000
$1,450
1
2
3
4
Campaign #2
$0
$2,000
$0
$0
$800
$2,400
$900
$850
1
2
3
4
Campaign #3
$0
$300
$300
$300
$800
$850
$825
$800
Sales are increasing, and
advertising appears to be
helping. Ongoing advertising
keeps the public aware of your
business and reminds them to
purchase. But other factors
may also be affecting sales.
Notice that sales dropped off
when the advertising stopped.
If you wanted to highlight a
special week, then this was
successful. But advertising is
forgotten over time if you do
not keep it up.
This campaign doesn’t seem to
be helping much. Perhaps the
message is wrong, or the type
of advertising used did not
reach the right people. Or is
something else happening?
• No matter how much you advertise in a certain area, the maximum number of
sales is limited to the potential customers in that area. Advertising will help
you reach more of those customers. At some point you may find that more
advertising does not increase sales enough to be worth the cost.
• Look for other factors which might be affecting sales — a new competitor?
special sales? holiday time when people are buying more anyway? or more
could increase or decrease your sales regardless of your advertising.
Different Types of Advertising
Now, let’s look at some specific types of advertising, starting with Television.
Television
TV has been one of the biggest advertising revolutions. Television has a broad
acceptance and a high believability factor. Think of the various toys which have
become overnight sensations for Christmas presents, just because people saw
them on TV! With television you can run commercials which combine sight,
sound and motion. You can explain your products and services or alert
customers to special promotions. And you reach a large geographic range of
people in your area.
However, TV commercials are expensive to produce and generally are the most
expensive type of advertising to buy. Cable and satellite stations allow you to
target more specific types of viewers, but many viewers switch channels just to
avoid the advertisements. Since few people watch TV with paper and pencil in
hand, you have to send a simple message – preferably, one they will remember
without writing anything down. And, you have to run your commercials more
than once or twice – in case people weren’t watching that show or were in the
kitchen making a snack when your commercial ran.
40
Radio
Radio is a popular type of advertising.
Radio, like television, is broadcast over a wide listening area. You can reach a lot
of potential customers with radio. And, by selecting the right stations and
programs, you can have good control of the type of listeners you will reach.
Often radio advertising can be done with a lot less advance notice - to get that
last minute shopping message out to the public. And, radio is a lot cheaper than
television - both in making the commercials and in buying air time.
Radio’s chief drawback is that it is audio only - there are no visual aids. People
do not remember as well when they can’t see something, so you have to have
very short, simple messages on the radio. Radios are often played with other
competing background noises for the listeners’ attention. So messages have to
be repeated frequently.
Newspapers
Newspapers are another good type of
advertising.
Newspapers are distributed to regional
subscribers, and most people buy the local
paper. Like television there is a broad
acceptance and high believability in
newspaper ads. Because your ad is in
print, you can give more details - like
prices and special features. Daily papers
offer excellent flexibility for delivering
your advertisements. And, the time of
day does not matter with a newspaper like
it does with radio and TV. If someone buys a newspaper, they will generally read
the paper - whether in the morning or evening.
But, newspapers are limited because they are only print (and often just black and
white of low print quality). You must make your advertisement eye-catching
without fancy graphics. Also, newspapers only last until the next issue – usually
the next day. They usually do not get passed along to others, but are collected
and put in the recycling bin, or used for kindling in the fireplace.
Other Promotions
You will generally have some printed or other types of promotional materials.
Your business cards and letterhead are advertisements for your company, even
though they provide only a small amount of advertising awareness. Periodically,
you may want to mail out flyers on special sales to your customers. You might
want to put up posters in your store windows, or make special labels, sales tags
or restaurant menus. You will find that you will need some printed materials —
how many and which ones will depend on you and your business.
More and more businesses are investing in other creative types of advertising.
This can include promotional merchandise like hats, t-shirts and mugs;
sponsorships of high-profile events; using entertainment to draw people to the
business; and more.
41
Remember that no type of advertising is perfect.
Yet some level of advertising has been proven
necessary for all businesses. There are books,
experts, psychologists, researchers — you name it
— who have made advertising a lifetime study.
But the most important thing is to keep within your
budget and to use your advertising dollars the best
way you can to transmit your message to your
target audience.
you can change your advertising daily,
selecting radio, newspaper, and/or
busker (entertainer) promotions of
differing cost levels.
42
Business Reports
10. Business Reports
Accounting
What is Accounting?
You need money to run a business. You have to pay
salaries, pay your suppliers for your inventory, pay
rent, pay for advertising, and so on. You also receive
money when you sell your products.
You need a system that will measure, record, and
forecast the financial transactions of the business, i.e.
a system that will account for your monetary
transactions. Accounting is the system used to
classify and interpret your business in units of money.
In your personal life, a checkbook might be enough to
keep track of your monetary transactions - your
deposits, cash withdrawals, and checks written. A
business, however, has more numerous and more
complicated financial transactions. Therefore it needs
a more detailed tracking system.
For example, a business has to track the sales taxes it collects and pay them to the
government. It has to track all its loan payments so it knows how much is left to be
paid. It has to keep records of who has invested in the company and how much. These
are only a few of the transactions which are recorded. Maintaining these financial
records is often called “keeping the company’s books,” or Bookkeeping.
Before computers, all accounting records were handwritten (not even a calculator!) in a
series of paper books called journals and ledgers. Today, there are many accounting
software programs which do most of the work for you.
Tracking Value and Financial
Commitments
Have you ever looked at something you
wanted to purchase and thought, “I have
enough money to buy that, but if I do, then I
will not have enough to … [pay my rent, buy
food, take a trip, pay my university tuition, or
something else]?” Mentally you are reserving
some of your cash to pay for something in the
future – perhaps something you charged but
have not been billed for. The opposite can
happen, too. You might say, “I don’t have
enough in my bank account to buy that, but I
know I’m getting paid on Friday. So, I can
charge it today, and by the time I get the bill,
I’ll have the money to pay for it.”
43
Business Reports
These are examples of the difference between only
tracking your cash balances and tracking both your
cash and your other financial commitments. In a cash
based system, you only deal with cash when you pay
or receive it – like in your personal checkbook. But a
business must plan more carefully, recording all the
commitments it has made and received, even if the
cash has not been transferred yet.
When you receive your order of inventory for your
business, you are making a commitment to pay for it.
This becomes a small debt of the company, something
you must pay (usually within 30 days). If someone
buys clothing on a lay-away plan from your store, they
plan to pay you for the rest of the purchase price over time. You have made a sale, but
you don’t have all the money yet.
Many people find accounting to be boring. However, it is very important to understand
what your accounting reports are saying. These reports represent the financial condition
of your business, and are important management tools.
IMPORTANT: As an entrepreneur, you must remember that since accounting systems
only record known financial transactions, there are many types of important business
information and events which cannot be recorded but which could significantly impact
your company. What if one of your key sales people is seriously injured in a biking
accident? There are no accounting records which show how many customers you will
lose because this employee cannot work. What if your competitor goes out of business,
and you might double your sales overnight? What if customers say they dislike your
products?
Your accounting system cannot record what you think will happen in sales, only what
does happen. So, while financial reports are very important, they must be used in
conjunction with other documents, like the Business Plan, to give a complete picture of
your business.
Financial Statements
Financial statements are designed to report
integrates the basics of business
accounting to keep track of your
the present earnings of the business (also
company’s financial transactions.
called “profits” or “net income”) and the
overall financial strength of the company.
Your accounting system provides many useful
reports for managing your business. They are also read and interpreted by many
different people outside of the company, for instance investors, bankers, and
government tax authorities.
The two most important financial statements are your Income Statement and
Balance Sheet. The Income Statement records the operating activities (sales and
expenses) which have occurred only during the period covered by the statements. The
44
Business Reports
Balance Sheet shows the entire cumulative value of the business at a certain point in
time. It is like a financial photograph of your business.
Income Statement
The Income Statement records sales and expenses which have occurred only during the
time period covered by the statements. The Income Statement is also sometimes called
a “Profit and Loss Statement” because it shows your profit or loss from running your
business during this period of time.
The Income Statement is based on a simple mathematical formula:
Revenues — Expenses = Net Income (or Loss)
Key Definitions:
Revenues: Money received or which will be received from sales in the operation
of the business during this period.
Expenses: The costs of running the business and making the sales during this
period. (This excludes purchasing things which will have value to the company in
the future – these are called Assets and are recorded on the Balance Sheet.)
Net Income (or Loss): Also called Net Profit (or Loss), or Earnings, this is the
difference between the sales and the costs of operating the business during this
period. Your company’s Net Income is usually not the same amount as your cash
balance because of assets purchased (reductions to cash) and money loaned to
or invested in the company (additions to cash), which are not considered sales or
expenses.
Following is a generic layout of the standard income statement. (You would not see the
minus and equal signs though!)
Income Statement
ABC Company
For the Period of _________
Revenues
—
=
Gross Profit
—
=
Other Expenses
Income/(Loss) before Taxes
—
=
Cost of Goods Sold
Income Taxes
Net Income/(Loss)
45
Business Reports
Balance Sheet
The Balance Sheet shows the overall financial value of
your company at a given date. The Balance Sheet is
based on another simple mathematical formula:
Assets = Liabilities + Equity
Key Definitions:
Asset: Something owned by the business which has
future value (cash, inventory, equipment, etc.).
Liability: A debt of the company with set repayment
terms (payables, loans, mortgages, etc.).
Equity: Investment into the business (which, unlike a
loan, is not paid back) and the net profits (earnings) from
operations that are retained in the company.
Another way to look at the meaning of this formula is to say that the things of value
owned by the company (assets) have been purchased or financed by means of debt
(liabilities), investment and profits (equity). This is the “photograph” which the Balance
Sheet portrays.
Accounting software programs have changed the look of the Balance Sheet slightly.
When accountants were keeping the books by hand, the title of this report made more
obvious sense. Then, left side of the report always showed the assets, and the right
side showed the liabilities and equity — making the left side totals “balance” the totals
on the right side of the
page. Today,
computerized reports
Balance Sheet
usually list everything in a
ABC Company
vertical column starting
with assets, so the visual
As of
balance is lost.
Here is the format of a
classic balance sheet —
one where the left side
balances with the right:
ASSETS
LIABILITIES
Current Assets
- Cash
- Inventory
Current Liabilities
- Payables
Fixed Assets
- Equipment
Long Term Liabilities
- Loans
Other Assets
- Trademarks
EQUITY
- Paid-in Capital
- Retained Earnings
Total Assets
Total Liabilities & Equity
46
Business Reports
Relationship of Income Statement to Balance Sheet
The Income Statement covers the operations over a period of time, while the Balance
Sheet is a snapshot of the company at a point in time. The Retained Earnings category
on the Balance Sheet is the cumulative sum of all the profits and losses from the
beginning of the company, to date. You might think of Retained Earnings as the sum of
all the company’s Income Statements combined into one grand total number.
Meanwhile, only the Income Statement covering the current period is printed out
separately.
Balance Sheet
ABC Company
As of
ASSETS
LIABILITIES
Current Assets
- Cash
- Inventory
Current Liabilities
- Payables
Fixed Assets
- Equipment
Income Statement
Long Term Liabilities
- Loans
Other Assets
- Trademarks
EQUITY
- Paid-in Capital
- Retained Earnings
Total Assets
Total Liabilities & Equity
ABC Company
For the Period of _________
=
Revenues
— Cost of Goods Sold
Gross Profit
=
— Other Operating Expenses
Operating Income
— Income Taxes
=
Net Income/(Loss)
Other Management Reports
Many other reports in addition to the Balance Sheet and Income Statement may be
helpful tools to help manage and plan your business operations. These reports may help
answer some of the following questions:
•
•
•
•
•
•
•
Did you cover your costs for today’s sales?
How happy are customers with your products and services?
Which products are selling most?
Are your revenues going up over time?
Are expenses going up faster or slower than revenues?
How many customers do you serve each day?
What is your share of all sales on these products in the market?
47
Business Reports
Answers to these questions may help you decide to adjust your products’ prices,
calculate amounts of inventory to order, change your advertising budget, hire or fire
employees, or take other actions to improve your business’ operations.
No one report may give you a complete picture or answer all your questions. Be sure to
become familiar with all your business reports so that you identify which information
may be helpful to certain decisions.
GoVenture Micro Business keeps
your business accounting records and
tracks key marketing data for you. The
Reports area contains many useful
statements and charts to show what
has happened so far and provides data
to help manage your future decisions.
48
Evaluating Success
11. Evaluating Success
In real life it is difficult, and possibly
dangerous, to use money as the primary
indicator of success. Success is a
measure of the extent to which you have
achieved your goals. There are many
entrepreneurs who may not be known for
their financial wealth, but who consider
themselves very successful.
If a real life entrepreneur and a real life
business were being evaluated, success
would likely be measured by a number of
factors reflecting both business and
personal success factors, including:
•
•
•
•
•
•
•
Business profits.
Employee morale.
Customer satisfaction.
Personal wealth generated.
Time devoted to family, friends, and self.
Personal stress level.
Overall personal satisfaction as an entrepreneur.
Anyone other than the actual entrepreneur may judge the success level differently than
the entrepreneur would, because there are many personal values which much be
evaluated. The better you know the entrepreneur in both business and personal
situations, the closer you will likely come to the entrepreneur’s own self-evaluation.
The following factors can be used to help measure success. Remember, each individual
measure is only a part of the overall evaluation, and must be weighted accordingly with
the others.
Measurements of Business Success
Profits
A business must generate profits in order to survive in the long term. It is
common for startup enterprises to lose money in the first few years. So initial
losses, or losses in other years do not mean the company will not be successful.
However, over time, the trend must be to generate ongoing profits.
Profit maximization is not always the best strategy either. You can reach short
term profits to the long term detriment of the company. For instance if you
underpay your employees, you may show more profit, but ultimately your
employee morale will be low, they may be less efficient, and they will ultimately
quit.
49
Evaluating Success
Net Worth
The cumulative value of the business is equal to its total investment and total net
profits to date. This number is shown on the business’ Balance Sheet as Total
Equity. The term Net Worth refers to the fact that Total Equity equals Total
Assets (all that is of value and owned by the business) less Total Liabilities
(company debts), or the net value (worth) after creditors have been paid.
Caution: Both Profit and Net Worth are historic measures. They show only what
has happened so far, and they do not indicate the true future potential.
Market Share
The percentage of customers/sales your business obtains in comparison to other
companies in the same type of business is called Market Share.
Time in Business
Simply surviving and keeping a business running for a length of time can be seen
as a success in itself.
Employee Morale
Running a successful business means hiring and training an efficient workforce.
Insufficient employees or a workforce with a poor morale can result in lost sales
and dissatisfied customers. Ultimately there is a financial effect on the company,
of both good and poor morale, but it is usually difficult to quantify. Happy
employees tend to work harder, more efficiently and deal with customers in a
more positive manner.
Customer service plays a large role in customer satisfaction and in repeat
customers, and thus, the long term success of the business is heavily linked to
employee morale.
Customer Satisfaction
Without customers, you have no sales. Satisfied customers return and buy
again. Satisfied customers also tell their friends and promote your business by
word of mouth free advertising – often the best type of endorsement your
business can obtain.
Measurements of Personal Success
Personal Net Worth
A successful business returns some level of personal
wealth to the entrepreneur. But, just like the business
which may show losses in its startup years, the
entrepreneur may forego personal wealth in the early
phases of the business in order to reinvest this money
into the growth of the business.
Time with Friends and Family
A successful entrepreneur has to balance both
business and personal commitments. An indication of
how well this balance has been achieved is shown in
50
Evaluating Success
the number of hours spent on personal time with friends, family and self.
There is no direct financial link from personal time to business success.
However, the less personal time, the higher the entrepreneur’s stress level is
likely to be over time. The higher the stress level, the more likely the
entrepreneur will become ill and lose critical time away from the business. In the
worst case this could result in a physical or psychological burnout and ultimate
sale or shutdown of the business.
Stress Level
As indicated above, stress is a critical factor in the long term health of the
entrepreneur, and thus of the business. Many factors affect the entrepreneur’s
stress level — lack of sleep, family commitments, employee problems, financial
concerns, sales levels, and more. In the short term most entrepreneurs can
survive high stress periods. In the long term stress will impact the entrepreneurs
ability to manage the business successfully.
Personal Goal Achievements
Achieving personal goals is a comparative analysis. It includes comparing the
tangible and intangible selections on the entrepreneur’s wish list to what you
have achieved. Success on many of the intangible goals will only be known by
the entrepreneur and cannot be stored in the simulation’s results.
Evaluating the GoVenture
Micro Business Experience
provides a printable report that
includes a profitability score and a
comprehensive Performance recap of all
the relevant simulation activity.
Evaluating the success of the GoVenture
Micro Business experience is not the same
thing as evaluating a successful GoVenture Micro Business entrepreneur. At times
failure can be more instructive than success. And, of course, a successful experience
depends on the goals you have established for using GoVenture Micro Business.
•
•
•
•
Are you interested in learning more about starting and operating a business?
Are you interested in experiencing the environment in which entrepreneurs
operate?
Are you interested in gaining specific knowledge about entrepreneurship and
enterprise management?
Are you using GoVenture Micro Business to help deliver specific curriculum
outcomes?
In addition to the criteria mentioned previously, here are some other, more finite,
factors you might wish to consider:
•
•
•
The Business Plan: Is it well written and comprehensive? Does it reflect the
actual operations of the company?
Business Location and Schedule: Do the hours of operations coincide with the
peak traffic time at that location? Is the employee staffing scheduled to provide
the most service in these peak times?
Business Location and Price/Quality/Appearance: Location also plays a factor in
the customers’ interests in quality levels and prices.
51
Next Steps
12. Next Steps
Now that you have reviewed the
basic elements and terminology of
small business, you can put your
knowledge to practice! And a fast,
fun, and risk-free way to learn-bydoing is to try the GoVenture Micro
Business simulation. Good luck, and
GoVenture!
www.GoVenture.net
52

GoVenture ® Experiencing Micro Business - MarketingII

Transcription

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